- 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
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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