We live in a very uncertain time right now, having seen COVID drastically affect our lives in so many ways. One of the areas that it’s hurt many of us is financially. Millions have been furloughed or laid off, tons of paychecks have been reduced or bonuses cut. Although it looks like some things are coming back and we’re coming to a ‘new normal’, really a big factor in all of this is the uncertainty. One day it seems like there’s an end in sight, and other days not so much. Making decisions during periods of uncertainty is tough, and when forced to make a decision, I think you should a) make the best decision possible with the information you have at hand and b) look at your core principles to help guide you.

One area that affects most young professionals is student loans. 43 million of us have student loans and making monthly payments is a part of life. The US government took drastic actions (which I applaud) early on in March to give Americans relief and for student loans, this meant putting a hold on payments, until the end of September and also wasn’t charging any interest either. For many young professionals struggling to pay rent, the mortgage or general living expenses, this was quite the lifeline! 

Very recently, the US government actually extended this program so instead of ending on September 30^th 2020, it’ll now end December 31^st, 2020. That’s 3 more additional months of student loan delays and the good news is that it’s delaying both payments and interest. So, if you have student loans through the federal government and are unable to make payments, you won’t have to and the balance won’t grow larger with interest. Definitely good news if you’re unable to make payments, but what about if you are able to? In these uncertain times I wanted to offer my thoughts on the matter, but may more importantly talk about how I’d approach the decision myself. In this scenario, I’ll assume that you’re in a good spot employment wise and are able to make the payments. 

Rapid fire thoughts

I have my YMF Financial Truths that I follow and use to help guide me through managing my personal finances. One of them is that you should put your money to work where it’ll work the hardest. Another is that debt is neither good nor evil, it’s simply a tool, however one that once I’ve leveraged the tool, would like to minimize and go on to the next tool. It’s of course nice not having to pay student loans right now, but they’ll still be there come January 1^st 2021, thankfully just not any bigger. If you’re able to do so, does it make sense to keep widdling away at them? Alternatively, you could use those extra 3 months of payments and apply that balance towards other higher balance loans. This year is also an election year with student loans being a hot topic, and some calls have been made for more debt forgiveness. Will there be a wholesale forgiveness of loans? Probably not, in my opinion, but I think that 2020 has shown us that anything is possible. 

Pros and Cons 

Let’s weigh the pros and cons next. Pros of continuing to pay would be that your debt decreases and you put money that you already planned to pay towards debt towards your debt and continue to widdle away at it. Pro is also that you don’t spend that money in another place instead of towards your debt. Cons are that we really don’t know that the near term future holds. COVID could get a whole lot better, or it could get a whole lot worse. There could be more shutdowns, shelter-in-place orders, or even more job losses again. Those job losses could affect you, either directly or indirectly with your business seeing a slowdown. There could be a scenario in which you find yourself in a financial bind and that you could need that money for other things. Another con could be if (and this is a long shot) student loans are forgiven and you’ve already been paying. In an uncertain time like this, having a little extra cash doesn’t seem like a bad idea. 

What I’d do

I think all in all, the cons outweigh the pros of continuing to pay off student loans while both payments and interest are on pause. I think there are no real gains to continuing to pay and keeping the money you planned on putting towards it somewhere safe. Now of course I’m not advocating that you go spend that money elsewhere, unless of course maybe it’s for other higher interest debt like credit cards. If it were I, I’d keep that money in a high yield savings account so I could earn interest and also keep it safe. When the loans are coming back online and I have to start making payments, I’d then potentially make a larger payment at that time with the money I’d set aside for a few months. 

Summary

In a world of uncertainty, make the best decision you can with the information at hand, stick to your base ideals and it never hurts to be a little more cautious!