PHOENIX — The federal stimulus package passed in March, known as the CARES Act, ends at the end of July. So, what does that mean for your student loans?
Jeff Anthony a wealth management advisor at Wilde Wealth Management Group in Tempe has provided some answers.
First, what kind of loan do you have?
Figure out which kind of student loans do you have. There are only two options, federal and private.
What do you do about payments if you lost your job/have been furloughed/have taken a pay cut?
If you have federal student loans the CARES Act automatically paused your payments on March 3, 2020, and that will last until Sept. 30, 2020.
If you have private student loans, you’ll need to contact your loan provider and ask what, if anything, they can do to help.
Jeff says most private student loan servicers are giving people three and sometimes up to 12-month breaks on student loan payments.
Is interest still accruing on your loans if the payments are paused?
“One of the big differences is the interest that you’re being charged,” says Jeff. “Through the federal loans, it’s interest rate free. On the private side, they’re going to accrue that interest and probably just add it to the loan.”
Should you continue making student loan payments if your job has not been affected?
Like a lot of things having to do with personal finances, this varies on a case-by-case basis.
Jeff says one thing he recommends to his clients is having a savings account with six months’ worth of money that would cover your essential expenses. If you don’t have that savings, look at this as an opportunity to build up savings.
What if there isn’t another stimulus package?
According to Jeff, everyone is pretty confident that Washington wants to pass another stimulus package. If they don’t or the new package doesn’t include relief for student loans, then it’s time to look at your budget.
“Kick out all of your nonessential items. That’s basically just trimming stuff down for if you do have to continue making payments on your loans. You want to make sure your outflow is as low as possible.”
If you’re worried about your financial future what actions can you take now?
Don’t wait for something bad to happen to know your options.
“Even if it’s not something you need right now, it’s a lot easier to make decisions if you know your options ahead of time, so that way, when you get put into the eye of the storm, you already know what your options are and you can make quicker better decisions. You’ll be more informed, rather than scrambling,” says Jeff.
What lessons can be learned from this current recession?
Recessions are cyclical and this one is caused by a virus that no one could have predicted. And since no one can predict if this one will be long or short, Jeff suggests using this one as an opportunity to relook at your finances.
“Make sure that you have a strong financial plan and that you are saving for the future. Use this a learning experience to say, ‘okay, this is why it’s important to have six months of expenses in a savings account and maybe cutting out some of the nonessential stuff that you don’t need to save for your future.”
For general tips on how to make a budget during these uncertain financial times, check out the video below: