Pay off your student loans

There is a lot of talk about the possibility of another round of stimulus checks being sent to American families. President Trump, Senator McConnell and others have all suggested this is possible in the next round of coronavirus relief funding. And with improved unemployment benefits expiring at the end of the month, Congress is expected to pass something before the August recess.

Typically, lawmakers fund direct stimulus payments, like those passed under the CARES Act and those under consideration now, with one of two goals in mind. First, they intend to come to the aid of those who are financially suffering from a crisis, such as those who have lost their jobs due to the pandemic. The other purpose of these stimulus checks is to put money in people’s pockets to spend.

Under Keynesian economic theory, some believe that during an economic downturn, the economy can be stimulated by government intervention. Economist John Maynard Keynes has advocated increased direct government spending and lower taxes as a way to pump money into the economy to get it going. Colloquially, this became known as “priming the pump. “The metaphor refers to old water pumps that needed a little water to start up. By injecting money into the economy, it will revive it and have a ripple effect.

So, lawmakers are hoping Americans will take those checks and spend them – either to pay for basic needs or for extra expenses. Spending on food, clothing, other retail businesses, etc., will prime the pump and start the economy, as it will help businesses, which then hire (or lay off) people, who then get paid and can spend. money.

It makes sense at the macroeconomic level. And a number of Americans clearly needed the money to spend. Research shows that the CARES Act stimulus checks have been spent quickly, especially by low-income families. But at the personal household level, those not struggling with the pandemic may want to take a look at their own budget and finances first.

Most advise against paying off debt and recommend either spending the check or saving money if your financial situation seems uncertain. But those with student debt (and little other consumer debt) should consider using stimulus funds to pay off their loans.

Of course, student borrowers who are struggling or feeling financially insecure due to the pandemic shouldn’t be thinking about their student loans just yet. This is why, in addition to the stimulus checks, the CARES law is suspended. student loan payments until September 30, 2020.

But while some college graduates are certainly struggling, university graduates fare better than those without a diploma. For those who are not affected, this might be a good time to repay the loans due to another provision of the CARES Act.

Not only the CARES law suspends payments on student loans held by the federal government, the legislation also removed interest for this period so that borrowers do not see their balances increase due to the automatic suspension. So that means borrowers who receive stimulus checks could make a principal payment only and reduce their balance faster. The average bachelor’s degree graduate leaves college with just under $ 30,000 in student debt. If a borrower received a stimulus check for $ 1,200, it would significantly reduce their debt.

Borrowers who are financially secure can make payments regardless of a stimulus, of course. If student borrowers can afford to pay off their student loans, now is the right time to do it. Paying your regular payment without interest will help you pay off your loans faster.

But this benefit expires soon. Unless Congress includes more relief for student loans, payments and interest will start again in October. If the stimulus checks arrive in August or September, there is still time to take advantage of this advantage.

Related readings:

What the coronavirus boost means for your student loans

Second stimulus checks and student loan forgiveness could come

A second stimulus could affect student loans

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