Investment Idea for Student Debt
- There is a temporary halt on payments due on federal student loans, and the interest rate has been reduced to 0%.
- This provision now runs through September 30, 2021.
Paying Down Debt
The prospect of paying down – or extinguishing – high-interest debt can be very attractive. More than 45 million Americans hold student loans averaging $31,000 – and national data shows that more than a third of student loan borrowers are over 40 years old (Figure 1). You or someone you know could potentially benefit from this approach.
Figure 1: Total Student Loan Balances by Age Group
Source: New York Fed Consumer Credit Panel/Equifax
The government-issued student loans that support both undergraduate and graduate tuition have fixed interest rates ranging from 3.8% to 6.8% in the last decade (Figure 2). But today, that borrowing rate is temporarily 0%.
Figure 2: Federal Student Loan Interest Rates by Year Issued
Source: savingforcollege.com
Our Washington consultants are skeptical cancellation will happen at all. Biden appears unlikely to pursue this via executive order, and forgiveness, even at the $10,000 level, likely doesn’t have the bipartisan support needed to pass Congress.
That’s why now may be a good time to discuss a student loan debt reduction strategy with your financial professional, while payments and interest remain on hold. Although paying down debt isn’t a particularly exciting investment opportunity, it’s certainly a practical plan that can offer added peace of mind for the future.
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