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May 4, 2020

Student Loans and Coronavirus: Why You Shouldn’t Pay Your Federal Loans Right Now


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Stock market volatility, staggering unemployment, and a global pandemic. It's no wonder that people keep talking about how different our world feels right now. In times of uncertainty, people find themselves with more questions than answers. That's certainly true for student loans and Coronavirus.

To make sense of these unprecedented times and the impact on student loans, I sat down with Robert Farrington, a student loan expert and founder of The College Investor.

Student loans are confusing enough as it is. With student loans and COVID, there is a lot of unpacking. That’s why Robert breaks down the CARES Act and explains why you actually shouldn’t pay your federal loans right now. 

What Benefits Exist for Student Loan Borrowers During Coronavirus?

To understand student loans and Coronavirus, it is important to explore the CARES Act. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The act is designed to provide assistance to Americans in the wake of COVID-19 and the economic crisis.

Under the recently passed CARES Act, there are benefits for federal student loan borrowers. Robert broke down the key aspects and explained how these to plan out your finances over the next few months.

There are two important things to understand when it comes to how the CARES Act impacts your student loans:

  • Your payments are paused until September 30, 2020
  • Your interest is set to 0% until September 30, 2020

Robert says to think of it as the government pushing pause on federal student loans. With the passage of the CARES Act, the principal and the interest is suspended on federally-held student loans.

This is actually an exceptional benefit. Previously, natural disaster forbearance existed. However, during that forbearance, the interest would still grow. For federal student loan borrowers during the coronavirus crisis, the loans are essentially frozen in time. 

If I'm Out of Work, Should I Pay Back My Federal Student Loans During the COVID Pandemic? 

The unique situation that student loans and Coronavirus put borrowers in has many people asking what to do. If you are struggling financially, the relief provided under the CARES Act is a huge win. Additionally, the CARES Act relief can help people who are still somewhat stable focus on future financial success.

In the personal finance community, many people think that debt repayment is one of the most important goals. However, Robert is quick to say the opposite. With very few exceptions, you should not pay back your federal student loans during the COVID pandemic.

Robert says that unless someone is financially set for life, their money can work harder elsewhere these next few months.

Alternatives to Paying Federal Student Loans

If you don't pay your federal student loans, what do you do? Robert emphasizes two things.

Pay Other Debt

First, people should pay down other debt that is not paused at this time. For example, you can use these next few months to chip away at a car loan or to pay down high-interest credit cards.

Increase Your Emergency Fund

Then, there is a second money move to make. If you don’t have debt other than your student loans, you should consider using this time to increase your emergency fund.

Even if you are doing OK financially right now, no one knows what the future holds. Though we can’t predict the future, it is hard to imagine a scenario where someone would regret having extra money in the bank.

Is Now a Good Time To Refinance My Loans?

Refinancing student loans is one way to get ahead on your loans and reach debt freedom faster. However, Robert says that there is no reason to refinance a federal student loan at this time. Rather than acting now, he says to make a decision at the end of September. 

On the other hand, if you are a private loan borrower, now is a great time to refinance. Interest rates are historically low. Plus, there are no origination fees or prepayment penalties. Given the volatility of the economy and increased unemployment, it makes sense to lock in a lower rate with your employment history now. If refinancing your student loans is a good option for you, be on the lookout for incentives. Many private student loan companies offer bonuses and perks for a refi as a way to get new business.  

Is Student Loan Forgiveness Going to Happen?

With this unprecedented relief on student loans amidst COVID, some people are speculating about student loan forgiveness. Robert isn’t holding his breath. He does, however, think that this is a sign that loan programs will change.

Right now, FFEL loans don’t qualify. Neither do Perkins Loans unless they are federally held. These exceptions to the CARES Act suggest that some loan programs may be streamlined. Robert also thinks that we may see a reformation or even an expansion of Public Service Loan Forgiveness (PSLF). As far as blanket loan forgiveness, though, Robert doesn’t think that is happening anytime soon.

Key Takeaways on Student Loans and Coronavirus

The landscape of student loans changed quickly amidst the Coronavirus. Depending on the type of loans you have, your loan principal and interest payments may be paused under the CARES Act. That means that you should consider making different money moves for the next few months.

To stay up-to-date on student loans and COVID information, check out You can also check out Robert Farrington's first visit to Marriage Kids and Money and hear more about his personal student loan payoff journey.

How are you handling your student loans in the midst of the Coronavirus pandemic?

Please let me know in the comments below.



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Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

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