Financial Wellness co-columnist Fritz Wood is a veterinary industry veteran with a special interest in finance. He works with Triune Financial Partners to connect veterinarians with experienced, independent financial planners. He is the former personal finance editor of Veterinary Economics and was a treasurer and board member at the American Veterinary Medical Foundation. He holds bachelor degrees in accounting and business administration from the University of Kansas.
The coronavirus pandemic is forcing a lot of people to rethink their monthly budget. As more Americans deal with or anticipate unemployment or reduced income, many face hard decisions. The uncertainty is prompting folks to take a close look at their spending.
This is a great time to distinguish between wants and needs. You want filet mignon. You need protein. Cash is king and should be preserved.
Personal spending at this watershed moment in history must be prioritized. Food, clothing, shelter and transportation top your list. Will you turn off autopay and cancel nonessential (non-life-sustaining) subscriptions and memberships? Until you have more clarity or comfort about your future income, consider halting 401(k) contributions and ceasing extra payments on credits cards, car loans, mortgages and other debt. Ask yourself, “Can I barter to conserve cash?”
Relief for Borrowers
Student loan borrowers got good news. The federal government suspended monthly payments and interest accruals on most federal student debt for half of this year. From March 13 to Sept. 30, eligible borrower’s balances are frozen with no financial penalties.
The suspensions apply to loans the Department of Education holds under the federal direct program in effect since 2010 and to some of the loans issued under the now-defunct Federal Family Education Loan program. The suspensions cover undergraduate and graduate students holding Stafford loans and parents and graduate students with federal Plus loans. They also apply to borrowers using income-driven repayment plans and loan-forgiveness programs.
The suspensions don’t apply to loans issued under the Federal Family Education Loan program that are currently held by commercial institutions rather than the Department of Education. Student loans issued by private lenders also don’t qualify, although some private lenders allow for temporary loan repayment suspensions. (Call your lender to ask for flexibility.) If you aren’t sure whether your loans qualify, contact your service provider.
How Can I Suspend Payments?
Your loan servicer is required to automatically suspend your payments due between March 13 and Sept. 30, and change your interest rate to zero. You need do nothing.
However, there are reasons to continue your monthly payments if you can afford to. Payments you make during this six-month period will be applied in full to your loan’s principal balance, allowing you to repay the debt faster and with less interest. People just starting repayments have the most to gain, since the portion of each monthly payment that covers interest declines over time.
If you believe you are likely to qualify for loan forgiveness, you should refrain from making voluntary payments. Extra payments will just reduce the amount that will be forgiven.
Regular monthly payments resume Oct. 1. If you are unable to afford payments at that time, consider an income-driven repayment plan, or alternatively, you can request forbearance or economic hardship deferment.