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Should I Pay Off My Student Loans Right Now? - YouTube
Channel: You Need A Budget (YNAB)
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millions of americans are getting the
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opportunity to hit
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pause on their student loan payments
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what does that mean for you
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and how should you respond to it stick
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around
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[Music]
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hi there i'm ben with unit a budget and
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i'm here to tell you
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everything you need to know about the
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student loan freeze if you already know
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all about it then you can go ahead and
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skip to the next section of this video
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where i'll talk through some tips on
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what to do with all this money you're
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suddenly not required to throw at
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student loans
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for those who are a bit confused and
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let's face it there's a lot to be
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confused about in 2021
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in response to cova 19 the federal
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government suspended all
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student loan payments in march of 2020.
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not only were borrowers
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not required to make monthly payments
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but all interest rates were temporarily
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lowered to
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zero percent this was true even if you'd
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gone into default on your student loans
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in other words the federal government
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put student loans on pause
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now it's important to clarify that this
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only applies to student loans issued by
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the department of education
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private student loan providers are not
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required to suspend payments
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although some private providers have
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followed suit so
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check in with yours to see if they have
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any new options for you
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also if you have any ffel or perkins
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loans it's worth noting that some of
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those
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aren't technically financed by the
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federal government and therefore aren't
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necessarily suspended
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if you're unsure contact your loan
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provider to check now this freeze was
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set to expire january 31st of this year
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but president biden has extended that
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expiration date to september 30th
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2021 which just so happens to be my
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birthday so when your student loans come
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due again
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just remember that i'm older
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you don't need to do anything to make it
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happen it's all automatic
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so if anyone contacts you saying you
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need to pay a fee
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that's a scam and you can ignore it it's
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also worth noting that any payments
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you've made on federal loans
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since march 13 2020 are eligible for a
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refund
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so if you've continued to pay and find
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yourself in a situation where you
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really need that money that option is
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available to you
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just remember that any money you're
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refunded is money you'll have to pay
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back
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later because you know it's a loan
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so that is the student loan debt freeze
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it's a weird thing
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so what do we do about it well let's
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step back
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and get a little perspective not having
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to pay that monthly payment
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means you now have a say in what happens
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with those dollars
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right now the average student loan
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payment is right around four hundred
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dollars
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so for the average person from january
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to september that's an extra thirty two
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hundred dollars they get to hang on to
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yours may be bigger or smaller but
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you know money's money if you're also
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getting a stimulus payment that's an
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extra six
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hundred dollars putting our average
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american up to thirty eight hundred
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dollars
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and not to mention there's tax season
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where the average refund is about twenty
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five
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hundred dollars so the average american
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with student loans is looking at
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anything from an extra thirty eight
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hundred dollars
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to sixty three hundred dollars in their
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bank account this year
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that means that a lot of people are
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likely looking at the biggest windfall
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of their life
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so far i mean if someone dropped thirty
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eight hundred dollars in your lap
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you'd want to think about it right so
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what should you do with that money well
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it's time to ask yourself some questions
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let's start with a big one should you
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keep paying down
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your student loans obviously if your
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student loans aren't accruing interest
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right now
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then you'll get out of debt a lot faster
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and save yourself some money on interest
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if you keep paying them down during this
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freeze here at ynab
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we love paying down debt we even made a
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whole video course
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just to help people come up with a
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step-by-step debt pay down plan
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which i would highly recommend if you're
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currently trying to get out of debt
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it's totally free you don't have to sign
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up for any email lists or trials or any
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of that
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and you can knock the whole thing out in
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a little over an hour if that sounds
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like your jam
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you'll find a link in the description so
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yeah
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i love the idea of you getting out of
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debt faster but
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here's a little food for thought there's
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been a lot of buzz about whether the
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federal government will
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full-on cancel some amount of student
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loan debt with some people saying
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ten thousand dollars another saying as
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much as fifty thousand dollars
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now there's a very good chance that
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won't happen
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because it would be virtually
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unprecedented what
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last year was kind of the year of the
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virtually unprecedented
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so it would be a serious bummer to be
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paying off those debts all through the
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freeze
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only to find out that you didn't
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actually need to
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i mean even if the federal government
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offers refunds to people who do that
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it's likely to be a slow annoying
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process
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to get all your money back obviously you
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don't
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want to bank on student loan
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cancellation because that's not a
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financial strategy that's just
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crossing your fingers and hoping for the
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best but
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there is a way you can still be
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responsible and aggressive about debt
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pay down
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without potentially getting undercut in
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the off chance a federal loan
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cancellation
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does go through each month act like
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you're still paying your student loans
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keep budgeting for your loan payment but
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instead of sending it to your loan
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provider
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hang on to it don't spend it just let it
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build up
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now let's say the pipe dream becomes a
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reality and your loans do get cancelled
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hooray
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not only are you out of student loan
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debt but you just got a big old cash
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prize
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that you can use to pad your emergency
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fund or invest into your future
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whatever and if nothing happens and
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loans start up again on september 30th
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then you can drop that big old wad of
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cash all at once
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like a financial sledgehammer of
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responsibility
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functionally your money is doing the
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exact same thing as if you had paid
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month to month
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but you're not gonna have to go through
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the hassle of government bureaucracy
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if the landscape totally changes not to
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mention
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you might get to see one of your loans
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disappear instantaneously
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so there's a possible plan if you want
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to start kicking butt and taking names
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now
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then i'm not here to stop you but before
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we decide to funnel all that money
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toward our loans
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let's ask ourselves a few more questions
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are you struggling right now
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if you like so many other people
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affected by the pandemic are having
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trouble just getting food
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on the table then use this money to pay
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for your needs
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keep those lights on feed your family
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stay healthy
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and use this little reprieve to see if
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you can make any changes to your
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financial situation
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like moving to a place with lower rent
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picking up another job or side hustle
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eliminating some unnecessary expenses
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whatever that looks like for you
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if you're not financially struggling
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then ask yourself how secure do you feel
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let's say you make three thousand a
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month and your expenses come out to
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about three thousand a month
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great you've got food on the table your
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rent's on time and you'll be totally
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secure as long as nothing unexpected
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ever happens ever
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but we know that things break annual
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fees sneak up on us the holidays come
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every year
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and if you don't have any financial
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buffer then each of those things has the
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potential to become a financial
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crisis one that's likely to seriously
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disrupt your life
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or plunge you into even more debt most
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of those gotcha expenses aren't really
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surprises they're just easy to forget
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about or
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put off because they don't happen every
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month now
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imagine you could see into the future
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and you knew your car was going to need
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a 400
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repair in august what would you do my
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guess is that you'd start setting some
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money aside
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each month so that you'd be ready to pay
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that bill when it gets here
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because you're smart you went to college
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after all well why not do that with
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all of those unexpected scenarios take
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that student loan money and set some
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aside for
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car repairs for your amazon prime
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subscription for christmas and birthday
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gifts
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all those things you're going to need to
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pay eventually
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track how much money you're setting
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aside for each expense think of it as a
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scoreboard for your financial security
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by being proactive about these
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non-monthly expenses
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rather than reactive you're going to
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give yourself way more flexibility
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and peace of mind if our 3 000 a month
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friend gets that conservative
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3 800 estimate we talked about that's
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with
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no tax refund then he could get a whole
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month
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ahead by doing this if you're not
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struggling with money right now
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this is definitely the strategy i would
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look at first
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let's ask another important question do
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you have other debt you could tackle
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if you've got another form of debt like
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a credit card balance or a car loan
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now might be the perfect time to kick
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that loan
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right in its keister your federal
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student loans are most likely your
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lowest interest rates
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probably somewhere between 2.75 and 6
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a car loan can be anywhere from 4 to 12
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and a credit card can go from 12 to 25
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percent
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so let's put that into perspective say
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our average american has a credit card
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balance of
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three thousand dollars with a low
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interest rate of 12 percent
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and they're making a minimum payment of
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60 a month
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in the next eight months they'll pay
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more than 230 dollars in interest
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but how close are they to actually
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paying off that debt if they keep going
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at that rate
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and we assume they never use that credit
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card again and they never miss a payment
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it'll take them a little less than 17
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years
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to pay off that debt and they'll have
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paid over 25
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hundred dollars in interest think about
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what you could do with 2500
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if you weren't throwing it at a bank so
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wait what would 25
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be then oh no no
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no what okay so
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it would take more than 30 years to pay
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off that balance
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so there's that and you would pay 26
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dollars in interest
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on a three thousand dollar balance
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twenty six thousand dollars you're
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paying twenty six thousand dollars but
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you're not putting a down payment on a
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house
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you're just paying off your credit card
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but if our average american throws their
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freed up 400
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on top of that 60 minimum payment
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they'll pay off that 12
[602]
credit card completely by august
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having only paid 118 dollars in interest
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and in that 25
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scenario it would take them just one
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additional month
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to knock it out having only paid 258
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dollars in
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interest instead of you know 26 000
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that sounds like a good return on
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investment i don't know and
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that 60 minimum payment will be freed up
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to do
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other things like afford a nice date
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night once a month or help pay off the
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rest of their student loans
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or build up a strong emergency fund
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okay i know i'm getting pretty amped
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here but before you go hog wild on your
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other debts
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pause and go back to that question we
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asked earlier
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how secure do you feel if you
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aggressively pay down your credit card
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but have no buffer to deal with
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unexpected expenses then guess what
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happens when your alternator breaks
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you go right back into debt two steps
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forward
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two steps back building up the buffer
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you need to deal with those non-monthly
[661]
expenses
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will help you to stay out of debt in the
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future
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before you start your debt pay down plan
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you need a debt prevention plan
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to help you roll with those non-monthly
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expenses and surprises
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when they pop up but let's say you're
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not struggling
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you've got a good buffer and you're not
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plagued by other debts
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well here comes the fun question what do
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you want to do
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there's no wrong answer here if you want
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to get two three four five
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six months of expenses in the bank great
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invest into retirement
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save up for a down payment adopt a dog
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buy a keytar
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it's up to you but remember this isn't
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forever maybe student loans will get
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cancelled
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there's a real good chance they won't if
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your regular spending inflates during
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this time period
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then it's going to be tough to adjust
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once that student loan bill starts
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hitting your account again think of this
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as half time
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you've been wrestling with these student
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loans and now
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you get a chance to take a break but
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that doesn't mean
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you start gorging yourself on pizza or
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settling down for a nap
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you catch your breath you swig some
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gatorade and you
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figure out your game plan going into the
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second half this student loan freeze
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could just be a chance to loosen your
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belt
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or it could be the reset that finally
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helps you get
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real control over your money and your
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goals
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we've laid out a few game plans so you
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figure out which one works best for you
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and we'll see you in the second half
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