Personal Finance & Money Asked on April 9, 2021
The CARES act puts the interest rate for federal student loans at 0% until December 30th and there are no mandatory payments for student loans until that time.
I owe $32,000 in federal loans, normally at an interest rate of ~4.6%.
I owe $60,000 in private loans, at interest rates ranging from >6% to <11%.
If I’m trying to best take advantage of the CARES Act and reduce the total amount I’ll be paying (I plan on continuing to pay more than the minimum even after Covid-19), should I:
Mathematically, every dollar you pay toward debt is "paying off" interest at the rate of that debt (even if the interest is accruing but is deferred), so you should pay off the highest interest rate debts first, all else being equal.
This is all contingent on you paying as much as possible towards the debt. If you were to instead just pay the minimums on the private debt and use the forbearance for other expenses, it would be a different story.
Now, if the federal loans were to start accruing interest at, say, 20% after the grace period, then it would be a different story (which is why credit card statement balances should be paid off in full each period if at all possible). Then you would pay them off to avoid having that huge bump in interest after the grace period.
Answered by D Stanley on April 9, 2021
Your federal loans have the lowest interest rate even after they start charging you interest again.
Therefore, after they start charging you interest again, you'll still be paying them off last.
And right now, they're even cheaper than that! They're even cheaper than a level of cheapness that would make you pay them off last! So why wouldn't you pay them off last?
Answered by user253751 on April 9, 2021
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