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What You Should Know About Student Loan Forbearance


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January 31, 2021

What You Should Know About Student Loan Forbearance

Joe Biden's first week in office was filled with a flurry of Executive Orders, one of which was to direct the Department of Education to extend student loan forbearance until September 30, 2021. Other changes, such as cancelling of some student debt, are also on the table and could be passed later this year. With all of the changes amidst the ongoing Covid-19 pandemic, you might be wondering what that means for you and whether you should continue to pay on your loans or not.

Will I Continue to Be Charged Interest On My Loans?

No, you will not see any interest accrued until September 30, 2021. Any balance owed will be carried forward until September 30, and you will not be penalized for delaying payments until then.

Should I Continue to Pay On My Loans While Suspended?

While this will be determined by your individual circumstances, it may be a wise idea to put away what you were paying on your loans into an emergency savings fund. It is recommended that most people have 3-6 months living expenses in order to cover any unexpected costs. If you have less than that, or have failed to save anything at all, it might be a great time to put away some cash while your budget allows.

Why Should I Pay My Loans If The Government Will Cancel Them?

While several ideas have been floated in Congress, it appears that the Biden administration supports cancelling $10,000 of federal student debt for every borrower. This would include direct subsidized and direct unsubsidized federal student loans, but would not count towards any private loans. While we cannot predict what legislation may be passed, it's a good idea to check what kind and how much debt that you have before making any decisions about how to proceed.

How Else Can I Pay Down My Loans?

If you live in a state that offers tax deductions for 529 plans, it may not be too late to open a 529 education savings plan for yourself. The SECURE Act of 2019 allows for a lifetime maximum of $10,000 per person to be used from a 529 plan to pay down student loan debt. Contributions may be tax deductible depending on your state's laws, and any growth is tax free if used for education. Also, if you have any funds remaining after paying down $10,000 of your own debt, you can change the beneficiary to a qualifying family member such as a child.

While we cannot guarantee that more government relief is on the way, now is a good time to make sure you understand how much and what type of loans that you have so you can determine how the potential changes would impact your personal finances. If you still have questions, now may be the perfect time to reach out to a financial professional to determine the best approach to eliminating your debt and freeing up more of your hard-earned cash.


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About the author

a man wearing a suit and tie smiling at the camera

Billy Daniels

Vice President, Private CFO®

A native of Mobile, AL, Billy moved to Atlanta shortly after graduating from The University of Alabama in 2013. Billy joined the oXYGen Financial team as a Vice President in 2019 with 4 years of previous experience in the financial services industry. In his spare time, Billy is an avid golfer, watches as many Braves games as he can, and pulls for his Crimson Tide on Saturdays in the Fall. Billy currently lives in Peachtree Corners, GA with his wife Molly, daughter Margot and their dog Beau.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Background and qualification information is available at FINRA's BrokerCheck website.

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