You Shouldn't Skip Your Student Loan Payments

Federal student loan borrowers have been granted another reprieve, but for those who can afford it, the most prudent thing to do is to just fork over the money.

Almost everyone has been taking advantage of the moratorium, which allows borrowers to press the pause button on payments without any interest accruing. Just 500,000 borrowers out of 43 million, or 1.1%, were still making payments a year after the freeze was initiated in March 2020 as part of pandemic relief efforts.

There’s reason to believe lots more are capable of doing so, but choosing not to. Studies show that households with graduate degrees (in other words, those that tend to be higher earners) owed 56% of the outstanding education debt, and 3% of those with professional and doctorate degrees held 20% of the debt. What’s more, the unemployment rate for workers with at least a bachelor’s degree is less than 2%.

Payments on $1.6 trillion of federal student debt were supposed to resume on May 1, but last week, the Biden administration said it was extending the relief until Aug. 31.(For those who are keeping track, this was the sixth extension.)

Taking advantage of another four months free of student loan payments seems like a no brainer — why make a payment if you don’t have to? But there are a few reasons why skipping payments could prove to be short-sighted for some.

First, going ahead and making payments during the hiatus, while there’s still no interest being charged on the loan, means your money will go directly toward the principal amount, helping you to pay off the loan faster with less interest overall (much like prepaying a mortgage). (Keep in mind that proceeding with student loan payments is best suited for those who have already checked off the personal-finance basics of creating an emergency fund and paying off any higher-interest debt first.)