If you’re not paying student loans now, what other money moves should you be making?

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If you have a federal student loan, the federal government has suspended payments, interest and collections activities through Jan. 31, 2022. This means that you can skip payments on most federal student loans for a few more months. Your “skipped” payments will even count toward Public Service Loan Forgiveness (PSLF) if you’re currently pursuing it, and you won’t be penalized if you’re on an income-driven repayment plan, either.

During this time, you can continue making payments in order to pay down your principal balance faster. With that said, experts agree that there are other smart money moves you could be making instead, like paying down private student loans, bolstering an emergency or savings fund or saving for a larger purchase.

What is administrative forbearance and who does it apply to?

Forbearance is one of the many built-in borrower protections that come with federal student loans. The Department of Education decided to put all government-owned federal student loans into “administrative forbearance” during the coronavirus pandemic to give borrowers some breathing room.

Administrative forbearance means that the Department of Education is temporarily suspending your loan payments. The government agency also dropped the interest rate on federal student loans to 0 percent during this particular forbearance period, in addition to halting collections activities on defaulted loans. This means that borrowers won’t have to worry about paying principal or interest at this time.

The administrative forbearance on federal student loans currently applies to borrowers with:

  • Direct Loans.
  • Loans from the Federal Family Education Loan (FFEL) Program owned by the U.S. Department of Education.
  • Privately owned FFEL program loans that are in default.
  • Perkins Loans owned by the U.S. Department of Education.

Money moves to make during the student loan payment suspension

For many student loan borrowers, the payment pause is a good opportunity to get on stronger financial footing. Here are some ways to use administrative forbearance to your advantage.

Pay down private student loans

Millennial money expert Robert Farrington of The College Investor says that if you’re not making federal student loan payments right now, you could consider focusing your efforts on your private student loans.

Since private loans were not included in this temporary forbearance, you have the opportunity to double up on private student loan payments and knock out this element of your debt even faster.

Who this is best for: Borrowers with both federal and private student loans.

Pay down high-interest debt

Your student loans may not be the best debt to attack if you have other high-interest balances weighing you down. If you have credit card debt with an average interest rate over 16 percent, for example, then that’s the best place to throw any extra funds. The same is true for auto loan debt or personal loan debt with high APRs. Simply put, the higher the interest rate of the debt you focus on, the more money you can save.

Farrington says that, given the economic headwinds and uncertainty ahead, eliminating as much debt as possible “can give you breathing room in your future budget.”

Who this is best for: Borrowers with large credit card balances or other forms of high-interest debt.

Build an emergency fund

Financial advisor Mark Reyes of Albert says that if you don’t have one already, you can also consider putting money toward an emergency fund. Reyes says that having three to six months of expenses covered is ideal.

After all, a job loss, a loss in income or a major medical scare could make it difficult to pay bills in the future. With a fully funded emergency fund or some savings set aside, on the other hand, you could buy some time while you get back on your feet.

Not only that, but having an emergency fund can help you avoid having to rack up debt when you fall behind, says financial advisor Christopher Struckhoff of Lionheart Capital Management in Irvine, California. Without an emergency fund, Struckhoff says that it’s easier to wind up in a position where you have to turn to credit cards to get by, and that can force you into a cycle of racking up high-interest debt that can be difficult to pay off.

Who this is best for: Borrowers without six months’ worth of emergency funds.

Save for another goal

Skipping federal student loan payments also paves the way for saving for specific goals you have, says Reyes. If you’re trying to save for a new car or a home remodeling project, for example, using some of your loan payment savings for these goals can be a smart move.

Depending on your timeline, Reyes also says to consider a high-yield savings account so you can earn interest on your savings. While high-yield savings accounts aren’t paying very high rates right now, any interest is better than nothing, and many of the best high-yield savings accounts on the market today can be opened with low account minimums and no ongoing fees.

Who this is best for: Borrowers saving up for a home or a car.

Boost your retirement contributions

If you have an emergency fund and you don’t have any other debt to pay off, Reyes says that you could also consider setting aside some of your funds for retirement.

“General recommendations are to allocate 10 percent to 15 percent of your income towards a retirement account, such as a 401(k),” he says. “If you can contribute more, the better.”

If you are fine with your workplace retirement contributions and don’t want to change them, you can also consider setting up or adding to another retirement account. For example, eligible individuals can contribute up to $6,000 across traditional or Roth IRA accounts in 2021, or $7,000 if you’re age 50 or older.

Who this is best for: Borrowers who haven’t invested much into retirement accounts.

How to prepare for the end of student loan forbearance

It’s a good idea to have a plan for your loan funds so you don’t squander them away. Jan. 31 will be here before you know it, and so will your next student loan bill. Here are some steps you should take as you prepare for loan forbearance to end:

  1. Go over your financial situation. Your monthly income and expenses may have both changed since the last time you made payments on your federal student loans. Go over your spending plan and figure out if a student loan payment still fits within your budget. If you believe that you’ll have trouble making payments once forbearance ends, you should call your loan servicer to ask about your options.
  2. Check your repayment plan options. Federal student loans have several income-driven repayment plans that base your monthly payments on your income. You may qualify to enroll in a plan with a longer repayment timeline and a lower monthly payment amount.
  3. Apply for hardship programs. If you feel that you can’t make payments at all, you may be able to apply for a traditional deferment or forbearance for your federal student loans. Both relief options freeze your payments for a certain period, which can buy you some time while you get back on your feet.
  4. Consider refinancing your student loans. If you have a consistent income, strong credit and little or no other debt, the end of the forbearance period might be an excellent time to refinance your student loans with a private lender. You’ll give up some access to protections like deferment or forbearance and income-driven repayment plans, but record-low interest rates could help you qualify for substantial savings.

Frequently asked questions about student loan forbearance

Should I consolidate my FFEL or Perkins Loan to take advantage of student loan suspension?

The Department of Education hasn’t extended administrative forbearance to loans that it doesn’t own, which includes some Perkins Loans and Federal Family Education Loan (FFEL) program loans that are in good standing.

But there’s a workaround: If you combine these student loans into a federal Direct Consolidation Loan, the ownership shifts to the Department of Education. The new consolidated loan then qualifies for suspended principal and interest payments through January 2022.

To figure out if this is the right move for you, first call your loan servicer to confirm that your loans are eligible for consolidation. Then ask whether your repayment term and interest rate will change and figure out how much more you’d pay in the long run. Consolidating might not be the best move if your ultimate goal is to save money.

Should I pay interest on my loans in forbearance?

The Department of Education temporarily lowered the interest rate on eligible federal student loan payments to 0 percent, so borrowers won’t need to worry about paying interest during this period of administrative forbearance. Any payments made during this time will go entirely toward the principal balance.

Should I keep making payments if my student loans could be canceled?

President Biden suggested during his campaign that he was in favor of forgiving some student loan debt, which may discourage some borrowers from making payments on their loans during administrative forbearance. However, so far the Biden administration has focused on targeted forgiveness for certain groups of borrowers, and widespread loan cancellation seems less likely.

If you choose not to make payments on your federal loans in anticipation of student loan forgiveness, it’s important to still have a plan in place to repay those loans once the forbearance period ends. Loan forgiveness is not guaranteed, so be prepared to resume payments as usual in February.

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Written by
Kim Porter
Contributing writer
Kim Porter is a personal finance expert who loves talking budgets, credit cards and student loans. In addition to serving as a contributing writer for Bankrate, Porter also writes for publications such as U.S. News & World Report, Credit Karma and Reviewed.com. When she's not writing or reading, you can usually find her planning a trip or training for her next race.
Edited by
Student loans editor