Tuesday, April 9

A financial advisor says the student loan payment pause is a ‘period of repair,’ and you can take advantage in 3 ways

  • Student loans have been paused until August 31, which could later be extended again.
  • Financial advisor Kevin Matthews described this as a financial “period of repair” for borrowers.
  • If your loans are paused, you can use that money to invest or build emergency savings.

Financial advisor Kevin Matthews says most of his millennial clients were paying between $300 and $500 every month in student loan payments before the pandemic. 

Today, the most popular topic of conversation in his office is what to do with that money now that the pause on student loan payments implemented by the Biden administration was extended until August 31. 

Since then, his clients have been using the money they save from not paying student loans to hit other financial goals. “To savings, the stock market — whatever it is that they’ve been wanting to do for years,” Matthews told Insider. “It’s actually made my job a lot easier because you have all this money left over to plan with.”

Matthews said that the extended pause on payments is a real blessing for people who were drowning in monthly payments, and suggested that those who haven’t seized this opportunity yet should act fast. 

White House Press Secretary Jen Psaki told reporters during a press conference on April 14 that by the time the August 31 deadline hits, President Biden plans to extend the student loan pause either for a fifth time or begin the process of cancelling student loans.

When payments restart, Matthews says, “that’s going to be somewhat of a shock to those who haven’t had enough time to save and invest.”

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He suggested three other areas to allocate money that isn’t going to student loan payments for the next few months:

1. Create an emergency fund

When the pandemic first began, Matthews said he had clients who only had about $1,000 in savings while trying to balance both rent and high student loan payments.

“When you tell me that you’re living in New York, or you’re moving to LA or living in Atlanta and all you have is $1,000 in emergency savings? That’s what we need to fix first,” said Matthews. 

He added that having a solid emergency account that covers about six to eight months of your total expenses is a great way to pay yourself first and should be the primary goal of anyone who doesn’t already have one. 

2. Start investing

Some of Matthews’ clients have focused more on heavily investing and “building up” their portfolios.

Matthews told Insider that this option has been really popular because some of his clients have been out of college for over a decade and have found this is the first real opportunity that they’ve ever had to actually start investing. “Whatever payment they were making to Sallie Mae is now going to a Roth IRA or a brokerage account,” he said.

By investing now and choosing to pay off your debt later, he continued, you can take advantage of unique market conditions that cannot be repeated later on.

3. Tackle the principal amount of your student loan debt

Just because the student loan payments are on pause doesn’t mean that you can’t use this time to pay any of it down. In fact, now might be a good time to make progress paying off high balances — while the loans are paused, they are not accruing any interest. 

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This means that borrowers have the opportunity to lower the principal amount of their debt (the original amount of money that they borrowed) instead of trying to play catch-up with never-ending interest. In the long run, this can ultimately lower your monthly payments and get you much closer to the goal of having paid them off entirely. 

Matthews said that he personally has used this time to pay down a little bit of his own student loan debt, but that this option is a bit less popular with his clients. “For most people, this has really been a period of repair,” he said. “And strengthening of some of the core basics that most people, prior to the pandemic, hadn’t really been paying enough attention to.”

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