Take advantage of student loan breaks before 2020 ends

Talk of student loan forgiveness has borrowers looking forward to 2021. But many already benefited from some unprecedented events in 2020:

• An administrative forbearance has paused most federal loan payments interest-free since March.

• The forbearance has also halted collections on defaulted loans.

• Interest rates fell to historic lows.

It’s unclear how long these breaks will last. If you’re in good financial shape, here’s how to take advantage of them while you can.

Make a lump-sum payment

The current student loan forbearance is scheduled to end Jan. 31. All borrowers should have a plan for repayment by that point.

If you’ll be able to afford your pre-pandemic payment amount, consider putting extra money toward your loans now.

Student loan payments must first cover outstanding interest. But with those charges paused since March, a lump-sum payment would put a direct dent in what you owe.

“By and large, the majority of students will not have any sort of interest accrual,” says Stacey

MacPhetres, senior director of education finance at Bright Horizons, which provides workplace employee services, including education advice.

One exception could be recent college graduates whose loans have yet to enter repayment. Those could have multiple years of accrued interest.

For example, say you took out $5,500 in unsubsidized loans at 4% interest freshman year. Four years later, those loans could have accrued close to $900 in interest to be added to your principal balance when your grace period ends. If you pay that interest off before then, you’ll stop future interest from growing on a bigger balance and pay less overall.

MacPhetres says the “fervor” around forgiveness has some borrowers balking at extra payments. But there are no guarantees that debt will be canceled.