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How pandemic pauses on student loans have saved my finances

I still feel responsible for the payments, but as a recent graduate, being able to take a breath and create a financial plan has been life-changing.
I'm 25 years old and have $85,000 in student loan debt, but the pause in loan payments has allowed me to get my finances on track.
I'm 25 years old and have $85,000 in student loan debt, but the pause in loan payments has allowed me to get my finances on track.TODAY Illustration / Getty Images

On Wednesday, President Joe Biden announced that the pause on federal student loan payments would be extended an additional four months, through Aug. 31.

I breathed a sigh of relief — like I imagine millions of other graduates grappling with debt did, too.

Federal student loan payments and interest have been paused since the early days of the pandemic, first by former President Donald Trump and now continued by Biden.

As someone who completed school in December 2019, the pause has given me time to actually get my finances in order and build my savings. I finished an undergraduate degree in 2018, then went straight to graduate school in New York City. After both degrees, I had student loan debt of about $85,000 in both private and federal loans. Currently, I'm responsible for $50,000 in federal loans, while my family offers support on the private loan payment. (The pause only applies to federal loans.)

Fifty-thousand dollars may not be much when compared to the vastness of the student debt crisis — collectively Americans owe nearly $1.75 trillion in student loans, according to an estimate from the Federal Reserve — but it's more than the average borrower owes.

The typical amount of outstanding education debt in 2017 was between $20,000 and $25,000, with the typical monthly payment being between $200 and $300, according to an earlier Federal Reserve report.

Before the pandemic pause, the monthly payment on my student loan would have been $500 — a quarter of my income at the time. Even extended repayment plans would be about $250 per month, plus increasing interest payments.

Having the loans paused, though, has been life-changing.

It's not that I don't feel responsibility to make the payments: I do. I'm not here to take a stance on loan forgiveness, either. But by having my loan payments delayed during this time, I've been able to get my financial health in order, establish a savings account and start investing in my future.

It's not that I don't feel responsibility to make the payments: I do. But by having them delayed, I've been able to get my financial health in order, establish a savings account and start investing in my future.

Instead of putting $500 toward my student loans every month — or annual payments of about $6,000 a year, still about 15% of my current salary after taxes — I've been able to put that money in a savings account. While it's earmarked for paying my student loans back, it also means that I now have several years' worth of payments ready to go. I have a healthy savings account in case I lose my job, need to move or have an unexpected medical expense. There's no ever-increasing interest driving up the overall cost of my loans. In short, when payments do resume, I'll be able to make payments in excess of the monthly minimums, reducing the amount I'll pay overall.

I've also been able to prepare for the future. Because I know I have funds to fall back on should anything happen to my paycheck or my ability to make student loan payments, I've been able to focus on more long-term financial goals, like establishing a Roth IRA and setting my 401(k) contributions to the highest possible amount. I'll likely scale those contributions down once loans are due again and I need to pay a fixed amount every month, but for now, I'm able to save more than I might otherwise be able to.

It’s also given me time to think and realize what the best plan for me is. Knowing that I have enough money saved to cover several years of payments makes it possible to think about the best way to pay back these loans: a lump sum, for smaller payments down the line, or payments now so I can maintain my savings? In general, the change to my financial health and the way I think about saving money has been helpful.

While the financial benefits to these pauses have been huge, the biggest benefit by far has been to my general mental health. I know that money is accessible if I need it, and I don't have to worry about interest rates driving my loan payments higher and higher. I'm not making payments one day, then coming back the next month to see I owe even more thanks to those interest rates.

I still know the bill will be due, whether student loan payments resume in September or are extended another several months or even forgiven entirely. But thanks to these pauses, I feel more prepared for that day.

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