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  • Writer's pictureLaToya Westbrooks Keeling

3 Ways to Take Advantage of the Student Loan Payment Pause

Updated: Apr 7, 2022

Many of us think back on our college years as some of the best years of our lives. We welcome back the memories of late nights out (or late nights in, depending on how hard you studied), eccentric professors, and deep friendships. But some things from college have overstayed their welcome—namely, our student debt.

Student debt is oppressive and a major hurdle for many of us—even for those with above-average incomes. Student debt can feel insurmountable. It can prevent us from experiencing the full joy of earning a degree or even reaching other important milestones in young adulthood, like buying a home or starting a family.

However, despite the hardships of the past two years, there has been a silver lining for many people with student loan debt. That silver lining has been the student loan payment pause. Together, we’ll review what the student loan payment pause is and how you can take advantage of the latest extension to make progress on your financial goals.

What Is the Student Loan Payment Pause?

When the Covid-19 pandemic upended our lives back in 2020, the U.S. Department of Education decided to pause student loan repayment, interest, and collections to provide student loan borrowers with some economic relief. Since then, the payment pause has been extended five times, with the most recent extension pausing payments through May 1, 2022.

There’s nothing you have to do to enroll for the student loan payment pause. As long as you have qualifying federal student loans, you can take advantage of the pause. (If you want to be certain that your loans are paused, you can contact a federal loan server to make sure you’re eligible.)

If your debt is paused, it opens up several opportunities to put your hard-earned cash to good use. Three great things you can do in the next few months to take advantage of the opportunity include:

  • Building an emergency fund

  • Paying off other high-interest debts

  • Paying off the principal of your student loan balance

1. Build an Emergency Fund

An emergency fund is vital to protect against the myriad of unknowns life can throw at us. In fact, the pandemic really showed us just how insecure our situations can be—a layoff, medical emergency, or business closure can literally occur at any time.

An emergency fund provides some insurance against the unexpected events we can’t control. And it allows you some breathing space to keep paying your bills if you have to change plans.

Generally speaking, emergency funds should cover between three to six months of your living expenses, including expenses like rent, food, transportation, and utilities in the event of an emergency. The more months of money you save up, the larger of a buffer you have against a crisis. (Of course, you want to be careful of holding too much cash in a savings account so you don’t risk losing purchasing power to inflation!)

The student loan payment pause is a great opportunity to start or beef up your emergency fund. Get in the habit of “pretending” to make student loan payments before they restart by saving the amount of your payment into an emergency fund each month. This will help you increase your financial security as much as possible while you’re still experiencing some relief.

2. Pay Off Other High-Interest Debts

Once an emergency fund is established, consider how you might tackle other debts you’re carrying. While there are a number of debt payoff strategies to choose from, I recommend starting with the debts that have the highest interest rates. Known as the avalanche method, this debt payoff strategy can help you pay off debt faster and save you money on interest.

Use the student loan payment pause to step back and take inventory of your outstanding debts. Your other debts may include credit card debt, car debt, medical debt, or something else. Credit card debt and car debt are particularly common, so consider the following:

  • Credit card debt: In 2021, it was found that the average credit card interest rate was 15.91%, and the average amount of U.S. credit card debt was $5,525. This adds up to an additional $487.03 paid in interest over the course of a year. Oftentimes, tackling credit card debt first can help you save more money in the long run.

  • Car debt: In 2020, it was found that Americans on average borrow $34,635 for car purchases and have 70-month loan terms for new cars. With an average auto loan interest rate of 9.46%, that means paying an additional $10,563.81 in interest over time.

Ultimately, you get to choose the best method for tackling your debt. You should determine the best strategy for how to tackle debt payments depending on your situation, your attitudes about debt, and your priorities.

3. Pay Off the Principal of Your Student Loan Balance

If you have a solid emergency fund and no other high-interest debt, the third thing you can do during the student loan payment pause is reduce the principal balance on your loans as much as possible! Your student loans won’t begin accruing interest again until August 31, 2022, so you have until then to start paying down the principal amounts on your loans free of charge.

This is substantial considering that the average balance for federal student loans is $37,113 and the current fixed interest rate for direct subsidized/unsubsidized loans to undergraduates is 3.73%. With the average student taking 20 years to pay back their loans, they’ll end up paying an additional $15,603.31 in interest.

Depending on the amount you owe, you may want to use the student loan payment pause to pay down your principal as much as possible. This is a huge opportunity to pay off your loans while they’re not costing you anything. In the above example, if you reduced the principal to $25,000, it would reduce the total interest payments by $5,092.43 over the course of the loan.

Please note that the interest rate on federal student loans will vary depending on the type of loan and its first disbursement date. You can view the interest rates for federal student loans first dispersed on or after July 1, 2021 and before July 1, 2022 here. Rates for loans disbursed before then can be seen here.

Let Wealthy Help You Strategize the Best Ways to Pay Off Debt

At Wealthly, we understand the burden of student loan debt all too well, and we want to help those who invested in their education reach financial freedom by taking advantage of all the opportunities available to them.

By working together we can review where you stand, prioritize what needs to be taken care of, and develop an action plan to pay down your debt in the way that makes the most sense for your circumstances.

To see if we can help you, email me at or to schedule a 1-on-1 Financial Coaching Call today click here.


Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

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