Stivers Financial Services


To Pay or Not to Pay: Why You Should Pay Your Student Loans, Even as Forbearance is Extended

As the Covid Pandemic began wreaking havoc on our Nation and World early in 2020, one of the greatest impacts it had other then the sickness itself, was the impact on our economy.  By March of 2020 businesses of all types were finding the need to close temporarily (with some never re-opening), while others were forced to drastically reduce their number of employees to compensate for the loss of business.

In an effort to avoid an economic crisis in addition to the health care crisis, the Federal Government created a stimulus package of 2 trillion dollars to be distributed in various ways that included direct payments to taxpayers, loans for small businesses, and expanded unemployment benefits.

In addition, the Federal Government created a program that would allow student loan payments to be temporarily “paused”.  This was commonly known as Student Loan Forbearance.  This program began in March of 2020 and has been extended several times over the past 2 years.  It was set to expire on May 1, 2022, but the Biden Administration extended it again until August 31, 2022, with the possibility of further extensions.

For some, the student loan forbearance has enabled those financially struggling to survive these difficult times.  But for others, who either never saw their income interrupted by Covid or have fully recovered from the financial crisis of March 2022, the question arises, “Should I restart paying my student loan payments even though I don’t have to”.

As a Financial Advisor I have advised a number of my clients with student loans to start paying back their loans for Four primary reasons:

#1  Debt affects your credit rating:  The amount of debt you have drastically affects your credit rating.  As the balance of your student loan goes down, your credit rating goes up.  So, if you can afford your student loan payments and begin making them again, it will greatly improve your credit score.

#2  Without student loans, you can accomplish other goals:  Another financial impact of the Covid crisis is the rapid increase in inflation.  This is especially true in the area of housing and automobile purchases.  Two primary factors in the ability to purchase a home or a vehicle is your ability to make the payment, and your underlying credit rating.  With student loans paid off, it assists in both of these areas.  It provides additional discretionary income to put towards the purchase of other goals such as a home or a car, and it improves your ability to be approved for a loan due to a better credit rating.  Even for those who have already been able to purchase a home or a car it can enable you to free up the funds for other goals such as a vacation or contributing more to your retirement account.

#3  The program wasn’t meant for people whose financial situation hasn’t changed due to Covid:  The program was designed to assist those with student loans who due to Covid saw their income greatly reduced or eliminated.  If your financial situation is the same as pre-Covid or for many has improved with rising wages, making timely payments is the moral and the ethical thing to do since a student loan is a contract where money was borrowed and agreed to be paid back in a certain time frame.  Honoring a financial contract is a great way to develop positive financial habits

#4  Paying off debt helps mental health:  Paying off debt not only provides one with a great sense of accomplishment, but it often lessens financial anxiety.  In addition, anything we can do that brings us back to a sense of normal after two years of dealing with changes in our lives due to Covid, can have a positive impact on our mental health. When asking the question, “To pay or not to pay?”, It is important to not only consider what the Federal Government says you can or cannot do, but also what is the right thing to do and is in the best interest of you and your family to create a greater degree of financial and mental health.

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