Pay off student loans or not during pandemic pause?

Debt
#1

Like so many, I have outstanding student loans that have been on pause and not accruing interest since the pandemic struck. I have been preparing to resume payments in May, though there are currently reports of possibly extending the pause in payments for who knows how long. Along with the pauses, there is the ongoing debate about some sort of forgiveness, though what that will look like is not clear.

According Jeremy’s post from How to prioritize your money (The phases of investing), I should pay down all non-mortgage debt (phase 2) before moving on to the emergency fund (phase 3), and then on to investing beyond the employee match (phase 4). Should I skip the step on paying down the debt that is currently costing me nothing and could be at least partially forgiven and instead move on to building the emergency fund? Or, should I just stick to the plan and pay down the student loans, since all payments during the pause would go towards the principal, and then build the emergency fund?

To muddy the waters, I work in public service, so I am on track to eventually have the loans forgiven, though for a couple of loans it will take me about 8 years for those to qualify under the current system once payments are required again. I also have a couple of loans that are slated to be forgiven in about 2.5 years once payments resume.

I appreciate any insights you could provide

#2

I would read up on PSLF and check out the information on the Reddit group. It’s possible if you consolidate your loans together the payment count on the ones that will be forvgiven will also count for those that are the farthest off. Also check out https://freestudentloanadvice.org/loan-forgiveness/public-service-loan-forgiveness/ and DM me if you need more help.

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#3

Hi @Misterdres!

I have been helping a family member who is in just about the same position as you. What makes it tricky is all the variables that you have no control over (e.g., when payments will resume, any form of forgiveness). Ideally, you would pay down as much principal as possible prior to interest beginning to accrue again. BUT, the chance of any form of broad forgiveness measures and/or the possibility of qualifying for PSLF definitely complicates this. So, unfortunately there is no right or wrong answer here without knowing the future.

I definitely agree with @Mark on becoming as educated as possible on PSLF. As you know, there are a number of factors that you must meet in order to qualify and it’s not always as clear to understand as I would like. It’s important to ensure that you are getting credit for qualifying payments during this payment pause. The studentaid.gov website has a lot of details on this.

I hope this helps. Let me know if there are any questions!

#4

Hi @ShaneSideris
Thanks for joining the discussion. You are right about the variables in play, and I agree that it is really worth looking into in order to maximize this opportunity. @Mark shared links to Reddit forums where many others are looking into this issue, so I am hopeful to get some clarity. If I find out more that helps with my particular situation, which is similar to that of your relative, I will pass it on.

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#5

Thank you @Misterdres, I would appreciate that!!

#6

Hi @ShaneSideris and @Mark,

I just wanted to update you all on the status of this issue, and to thank you for pointing me in the right direction. With the help of the very active and supportive Reddit group on Pubic Service Loan Forgiveness (PSLF), I was able to get all of my questions answered about how to take advantage of the temporary waiver that runs from Oct 2021 - Oct. 31, 2022.

For those of you who do not know, the criteria for PLSF is to have 120 payments in order to have the remaining debt forgiven. Anyone in this situation has to have their employer certify that they are working full time in Public Service (educator, non-profit, law enforcement, tribal govt., etc) using a form generated at the Federal Student Aid. There are a couple of very important changes due to the waiver.

  1. Past payments that did not count towards the 120, but kept the borrower in “good standing”, will be counted under the waiver. In my case, when my first child was born years ago, I dialed back my payments to a lesser amount, which under the original PSLF rules did not count towards the 120.
  2. Both types of Direct Loans (subsidized and unsubsidized) can be consolidated, and the payment count towards 120 for the new consolidated loan will use whichever of the original loans has the highest count. The only downside of this was that the new loan split the difference between the interest rates.
    The higher interest rate did not matter for my situation because after they updated my account in June I was over the 120 payment threshold! The servicing company, Fed Loan Servicing just notified me last week that my remaining debt has been forgiven! I am now just waiting for the Federal Student Aid website to update for it to be officially official.

I am trying to get the word out to people I know who work in my field (education) so that more can take advantage of this opportunity. While those who work in public service each have different circumstances, I encourage you to let anyone you know who works in these fields to look into this because they could really benefit.

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