What Does the CARES Act Extension Mean for You?

On December 22, 2021, the Biden administration announced the CARES Act Extension adjustment. Borrowers who hold federal student loans will now be interest and payment-free until May 1st, 2022. The pause on federal student loan payments, also know as ‘the freeze’, has provided necessary relief to millions of student loan borrowers. Borrowers have been presented with opportunities to focus on other aspects of their lives. This may include health, family, and additional important financial decisions. The extension comes as good news to those who needed additional time to catch up on other financial payments. It also helps people get ahead by continuing to make payments free of interest charges. The question then is: What does this extension mean for student loan borrowers now and what should borrowers be focusing on with a clear expiration date on the horizon? 

The extension of the moratorium on student loan payments provides opportunities to:  

CARES Act Extension Opportunity 1: Get ahead of your student loan debt

Take advantage of this opportunity if you are able to continue making student loan payments. This is an opportunity to reduce your principal balance with zero percent interest. As soon as payments and interest begin again, your interest rate will be applied to a lower balance, helping you save in the long run.  

CARES Act Extension Opportunity 2: Getting ready for repayment in May 2022

While much has slowed since 2020, the freeze has changed many things regarding your loans. It’s been a long time since your last federal student loan payment was due. It’s important to take this time to make sure you’re prepared to successfully reenter repayment upon resuming payments.  

Log in to the NSLDS, or contact your federal student loan servicer, to confirm the payment amount and beginning due date. Your budget has likely changed during the pandemic. If you expect to have difficulty making payments, you should talk to your servicer about any hardship forbearance options. Checking option availability now helps avoid a prolonged wait once the phone lines are flooded in February. Additionally, making sure you have direct deposit set up with the appropriate checking or savings account avoids missing payments, late fees, and hits on your credit report.

CARES Act Extension Opportunity 3: Refinancing any private student loans

Interest rates to refinance private student loans are at historic lows.  

Savings matter. Having the opportunity to lower your interest rate or reduce your monthly payment on your private student loans now could have a huge payoff later on. When you refinance your student loans, you can opt to just include your private student loans and leave your federal student loans as-is.  

Refinancing offers a path to get better terms, rates, for your loans. This allows you to either pay less now, making room for other higher interest expenses, or shorten your loan term, paying off student debt while incurring a lower interest amount.   

With 6 months to go until repayment on federal student loans resume, private student loans are a great candidate for immediate refinancing. Private student loans are not paused under the CARES Act. Additionally, rates for consumer loans have hit record lows this summer. There is no limit to how many times you can refinance your student loans. Furthermore, come February, you could also refinance your federal loans. Keep in mind, you will forgo some of the federal benefits like Public Student Loan Forgiveness and Income Based Repayment. 

CARES Act Extension Opportunity 4: It’s OK to take advantage of the relief 

Many are still suffering from financial hardship as a result of the pandemic. The extension of the pause on federal student loans provides a lifeline to millions of people. If necessary, it’s okay to use this time to focus on other areas of financial stability. This may include catching up on bills or paying down any high-interest credit card debt. This can help ensure that you don’t fall behind on other payments when your student loan repayment period begins again.  

It may also be a good way to help mitigate financial stress. Studies have shown that debt can cause substantial mental and emotional stress. Particularly, for those with families and numerous other responsibilities stress levels skyrocket. Of course, everyone is different. For some, taking this time to attack higher-interest debts can be a relief to lower one’s overall cost of personal debt. Furthermore, by putting each incremental dollar to the highest rate debt, you’ll end up paying the least over the life of all your debt. Others, however, are more comforted by the complete payoff of an obligation. In turn, using this time to close out other loans or lines of credit can be a good way to improve your balance sheet and state of mind. 

 Still Need Help? 

This may certainly be a stressful and confusing time for people. However, there is clarity on the horizon. You can now start planning to ensure you’re in the best possible position to successfully repay your student debt upon federal loan payment continuation. If you are fortunate to be mostly unaffected by the pandemic, at least financially, treat this extension of the federal loan freeze as an opportunity to get ahead and expedite your path to a student-debt-free life.