Expert Advice: Pause Student Loan Payments and Earn Interest – Betsy Mayotte

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Betsy Mayotte, President of the Institute of Student Loan Advisors, encourages people not to make any student payments until the pause has ended. Instead, she says, put what you would have paid into a savings account.

“Then you’ve maintained the habit of making the payment, but (you’re) earning a little bit of interest as well,” she said. “There’s no reason to send that money to the student loans until the last minute of the 0% interest rate.”

Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov or the one on TISLA’s website to find a payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs. “I really want to emphasize the long-term,” Mayotte said.

Sometimes, when borrowers are in a financial bind, they’ll choose the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “setting it and forgetting it,” she encourages borrowers to reevaluate when their financial situation improves.

WHAT’S AN INCOME-DRIVEN REPAYMENT PLAN?
An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. It takes into account different expenses in your budget, and most federal student loans are eligible for at least one of these types of plans.

Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. If your income is low enough, your payment could be as low as $0 per month. If you’d like to repay your federal student loans under an income-driven plan, the first step is to fill out an application through the Federal Student Aid website.