When the pandemic hit last year, Providence resident John Foley lost his job as a supply chain analyst and was staring at more than $100,000 in student debt, half of which was federally backed student loans.
“It was a huge household stress,” said the 34-year-old Johnson & Wales University alum, who lives with his girlfriend. “Nobody knew what was going to happen. Everything was really just up in the air. I just felt desperate.”
Foley found himself among tens of millions of student loan holders who were relieved when a moratorium on the repayment of federally backed
student loans was first instituted in 2020, allowing him and his girlfriend to put an extra $500 a month into a nest egg while also paying off a car loan with a high interest rate.
“It kind of gives you the feeling there is light at the end of the tunnel,” said Foley, who has found another supply chain job at a packaging supplier in Warwick. “The moratorium has really provided a great opportunity for myself and my girlfriend to actually put some money away and do some good for ourselves. We’ve actually been able to save up an emergency fund.”
Relief for more than 40 million borrowers will continue after the U.S. Department of Education under President Joe Biden recently announced that the pause on payments for federally backed student loans will be extended through Jan. 31. The average federal student loan debt is $36,510 per borrower, and private student loan debt averages $54,921, according to EducationData.org, which uses data from sources that include the National Center for Education Statistics and the World Bank.
The moratorium was initially set to expire on Sept. 30. The Department of Education said this would be the final extension before borrowers will once again be subject to interest on their balances and penalties for nonpayment.
‘Everything was really just up in the air. I just felt desperate.’
JOHN FOLEY, Johnson & Wales University alum
Financial advisers from the Providence area are now urging their clients with large amounts of federal student loans to take full advantage of the extension by using the extra time for budgeting, refinancing and reducing high-interest debt.
Susan Greenhalgh, accredited financial counselor at Scituate-based Mind Your Money LLC, said student loan debt holders who want to take advantage of this moratorium should take some time to do a financial self-assessment.
“One of the important things for everyone, no matter if you’re a recent graduate or what stage of life you’re at, is to be connected to your money,” said Greenhalgh, who conducts one-on-one coaching and personal finance workshops. “Make a list of everything you own and everything you owe, all the pieces that go with that – how much your interest rate is, what the due date is and how to pay that off. You can’t make a decision about student loans in a vacuum.”
Debt holders should determine what they want to achieve with their finances, whether it be paying off loans within a certain time frame, establishing an emergency fund, generating savings, buying a home or investing.
“Personal finance is very personal,” Greenhalgh said. “Get very quiet, with a pen and paper or a computer, and start drafting what’s important to me in life, and how do I want to live financially.”
For instance, Greenhalgh said, if a debt holder has a car payment that is $500 per month, and they realize this is one of their biggest expenditures, they may decide to prioritize that spending for other uses such as paying down their most high-interest loans and selling that vehicle for a less-expensive one.
“For young adults starting out, these financial decisions they make can really impact them for a long time in terms of how much student debt they will have,” Greenhalgh said.
At Credible, an online multi-lender marketplace that provides comparisons of personalized loan options, Chief Revenue Officer Robert Humann said he calls this process getting “finance fit.” Humann said it’s important for those with high-interest debt such as credit card debt to consider refinancing, with personal loan interest rates at near-record lows.
“Private student loans don’t qualify for relief. If you have them, it’s a fantastic time to consider refinancing them into a lower interest rate,” Humann said in an email. “Refinance rates for private student loans remain near record lows. … If you can’t refinance your high-interest debt, focus on paying down as much of it as you can. This will help minimize the interest you’ll pay and save you more money over time.”
One thing student loan debt holders should avoid during the moratorium is paying down their balance on the federally backed student loans, rather than private loans, said Richard Petrucci, a financial adviser at Piccerelli, Gilstein & Co. LLP in Providence.
That’s because Biden said during his presidential campaign that he supports forgiving $10,000 of federal student loans for every borrower, while some of his fellow Democrats such as Senate Majority Leader Chuck Schumer have called on the president to enact more sweeping debt cancellations of $50,000 per borrower.
The Biden administration has already canceled $9.5 billion in student debt for some who attended the defunct ITT Technical Institute and others who have a permanent disability.
“I have been advising our clients not to voluntarily make any payments,” Petrucci said. “If their balances are forgiven, they would have been paying for nothing.”
For Foley and others facing tens of thousands of dollars in student debt, further political action to forgive college loans would be liberating. Additional relief or even another extension on the moratorium, he said, would allow him and his girlfriend to confidently put a down payment on a home, and to “break the cycle of renting” that’s in the long run more costly than home ownership.
“I would just hate to see the pressure of student loans come back, take people who had a small glimpse of hope and financial independence, and just put them back into a paycheck-to-paycheck situation,” Foley said. “We’re in this situation financially as a nation where we are just starting to heal. But if we don’t do the right things to better ourselves, we’re going to end up in a bad situation again.”
Marc Larocque is a PBN staff writer. Email him at Larocque@PBN.com.
