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Advice On Managing Student Loan Payments During The Pandemic


We've talked a lot about how the country's efforts to contain the coronavirus has placed an incredible financial strain on millions of Americans for different reasons. Maybe their hours have been cut, or they found it hard to work while taking care of young children at home. Now we want to focus on those who are paying off student loans.

According to 2019 figures from the Federal Reserve, Americans owe some $1.6 trillion in student loan debt. Earlier this year, the government gave federal student loan recipients a reprieve on their payments. On Friday, they extended that forbearance until January 31. And now President-elect Joe Biden has signaled his support for some type of student loan forgiveness, possibly eliminating student debt altogether for some.

But like a vaccine, that's a ways off. So what to do in the meantime? For that, we're joined by Paco de Leon. She is a writer and personal finance expert, and every month, she answers personal finance questions for readers of Refinery29. That's a digital news and lifestyle site.

Paco de Leon, thank you so much for joining us.

PACO DE LEON: Thank you for having me.

MARTIN: Earlier this fall, you got a question from somebody who wanted to know if they should pay off their student loans or save for a rainy day fund. The person writing in said, quote, "I'm barely able to meet my minimum monthly payments, and I feel less and less motivated to pay them, especially when I feel so anxious about the immediate future. I feel compelled to create an emergency fund in case I get laid off."

I thought that was a really powerful question because the person hadn't been laid off, so that would be one answer.

DE LEON: Right.

MARTIN: But the person felt so insecure and uncertain about things. And I'm imagining this is a position that a lot of people are in right now. So can you just give us a sense of the scope of the problem, like how many people you think are in this situation? And then you can tell us what you said.

DE LEON: I mean, I think the majority of us are feeling tremendous amounts of uncertainty. We have no idea what is going to happen come January 1 with student loans, let alone when another stimulus - if another stimulus is going to be given to Americans. We have no idea when people are going to be vaccinated. So helping people, giving them advice on what to do with their money is a really challenging thing to do in this climate.

I mean, my advice for a lot of people is practical, but it's also esoteric. In the practical sense, you know, don't make any rash decisions. And especially with student loans, as best as you can, stay in communication with your loan servicer. You have to realize that the people on the other side working as loan servicers - they're learning how to roll out new programs. They're learning about changes in the same way that we're learning about changes.

MARTIN: What was your answer to the specific question, when the person said, look; I'm making these payments, I'm able to keep these payments, but I have no cushion? And I'm presuming that this person didn't have family members that could offer a cushion. So what's your specific thought about that?

DE LEON: So I'm in the camp that a lot of financial experts are in the camp, right? You know, I agree with a lot of the revisions that a lot of financial experts have made to their prior advice. So prior advice was, like, textbook definition of an emergency fund is three to six months of your expenses. And as soon as the pandemic happened, a lot of financial experts were like, yeah, you know, we're going to need a year's worth. A year's worth is really what you should go with.

So right now, just because I have no idea what's going to happen, I have no idea if living with pandemics is going to be normal for us - and what is that going to mean? So my advice is save as much as you reasonably can right now.

MARTIN: So the incoming Biden administration has expressed support for legislation that would forgive the first $10,000 of anybody's student loan debt. Tell me your thoughts about that.

I mean, I've already heard - it's really interesting just how much heat there is around this. I mean, on the one hand, you know, you have people who advocate this strongly who say, well, that's not nearly enough. And other people say, well, that's unfair because people who have a college education, even if they're heavily in debt for it, are at an advantage in the marketplace. That doesn't do anything for people who don't have that. So interesting, you know, how much heat there is around something like this. And what - just tell me what your thoughts are about that.

DE LEON: I mean, I think $10,000 is a really great amount because that hits a certain demographic of borrowers. So there are a lot of people who go to college. They take out loans. Things happen in their lives, and they don't end up completing school. And so they don't complete school, and they don't have credentials, and they have to go to work and earn money, right? And they still have to pay back what they've borrowed. And the overwhelming majority of those people are obviously not going to have $50,000 in loan debt. They're going to have $10,000 or less. So by forgiving this, you know, having this blanket forgiveness of $10,000, we're helping those people out.

And I can see people's perspective in terms of, this is an entitlement for college-educated people. What about the working class? I see that. And, you know, there's no one perfect solution. But I think this is a really great start.

MARTIN: That was Paco de Leon. She's a writer and financial consultant in Los Angeles.

Paco, thanks so much for joining us today.

DE LEON: Thank you so much. Transcript provided by NPR, Copyright NPR.