How to be lenient with federal student loans due to COVID-19


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  • The CARES Act tolerates federal student loans – you don’t have to make any payments by September 30, and no interest accrues during that time.
  • If during this time you choose to make the monthly payment as you normally would, the entire amount will be deposited into your loan capital.
  • If you put the amount you would normally spend in a high yield savings account, you can earn more interest and use the entire amount at the end of the deferral period for a lump sum payment of the student loan.
  • After all, you can now use the money to cover necessary expenses, build up your emergency fund or pay off higher-interest debt.
  • Check out Business Insider’s recommendations for the best high-yielding savings accounts »

Since the first publication of this article, federal student loan deferrals have been in place extended until December 31, 2020.

As the coronavirus is affecting Americans’ finances, The federal government has condoned federal student loans.

That means you don’t have to make any monthly payments for the federal student loan until September 30, 2020. During this time, no interest is accrued and service providers do not report missed payments to credit bureaus.

Forbearance can be a great relief for people on federal student loans. However, just because your payments are on hold doesn’t mean you will never pay the amount you are skipping now. On October 1st, you just pick up where you left off.

So what’s the best way to deal with student loan payments that are tolerated at the moment?

David Klein, CEO of a private lender CommonBond, suggests three possible approaches to federal student loans during the pandemic.

1. Continue to make monthly payments as usual

If the coronavirus has not had a material impact on your finances, you can choose to continue paying monthly.

“There are some people who have no problem keeping paying and they don’t want to remember to remember to pay back on September 30th and put it back on autopay,” says Klein.

He also advises that if you wait until October to pay, you risk forgetting to pay later or setting up automatic payment again because you are out of habit.

These errors can result in you missing a payment and being penalized. If you’re nervous about getting out of your routine, it can make sense to just keep paying.

If you keep making regular payments, you can settle your balance faster.

Under normal circumstances, part of your monthly student loan payment goes towards the principal (the amount the government originally loaned you) and part towards the interest. However, since the interest rates are at 0% through October, your full payment would go to your principal.

“If 100% of everything you pay is towards capital, you will pay back your capital more quickly,” says Klein. This means you can get out of debt faster.

The government has already suspended all eligible student loans. If you want to keep paying off your debts during this time, contact your student loan broker to set up payments.

2. Put the money in a high-interest savings account and pay a lump sum at the end of the deferral period

Maybe you are financially secure and not worry about being able to make payments again in October. If so, you may want to use the money you save each month to your advantage.

“Instead of giving the money to the federal government, put it in a high-yield savings account,” suggests Klein.

By putting the money you would normally spend on paying student loans into one high yield savings account, you can earn interest on your savings. Many

high yield savings accounts

offer well over 1% APY, which is compounded daily and paid monthly.

You can open your first high yield savings account to save the amount that you are now saving on loan payments. If you already have an account and have some money saved, put what you would normally spend on payments in that account for even more interest.

At the end of September, take all the money you would normally have paid and any funds you have earned in interest from your savings account, and make a one-time payment of your student loan. If you do this in late September (before interest accrues again), all of that money will go to your principal and nothing when it goes towards interest.

3. Keep your loans well tolerated now and start making regular payments starting October

If the coronavirus has affected your finances, don’t worry about using this time to pay off your college debts. It may be in your best interest to use that money elsewhere now and then just pick up where you left off in October.

Sure, you will get stuck with your student loan payments. But you can use this money for more important purposes.

When you are tight on cash, you can use the money you normally spend on student loans to pay your bills and cover necessary expenses. Or you could put the money in your emergency fundyou may need to tap into along the way



“If someone else has high-interest debt on their personal balance sheet … This would be a great time to take advantage of the federal relief where you don’t have to use that money on your student loan,” says Klein.

With the money from the student loan, you can pay off higher-interest debts such as credit cards or personal loans. In October, your federal student loan balance won’t be lower, but you will have less debt for your most expensive debts.

All three of these strategies are viable options. If you are not sure which route to take, Klein recommends using the CommonBond Guide to Student Loans. You will find out whether you are entitled to benefit under the CARES Act and, if necessary, receive tips on how to proceed.

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