hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

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kmbti
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Joined: Wed Dec 05, 2018 1:24 am

hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

Post by kmbti » Sat May 23, 2020 1:23 pm

COVID-19 has brought an opportunity for me to save money in the future, but to my expense now...

The federal student loan COVID-19 forbearance requires no payments until 09/30/2020 and 0% interest.

Current dilemma: $89k federal student loan debt (plus $48k private student loan-but that's getting refinanced) from PA school. I pay $580 monthly (approx 6% interest) for the federal loan. I am a new grad working only 2 years in my profession, mortgage payments, and newly married in Feb, so the safety cushion I had built over 2 years was depleted thanks to my wonderful wedding. Currently, my savings cushion covers me for 2 months. I am working less hours, so the money I save per month with my COVID-19 forbearance is actually helping me stay on top of the bills/ breaking even while still being able to save my normal 35% of my paycheck.

Should I continue to pay my federal loan despite the forbearance, to take advantage of the 0% interest?
$3,500 of payments now would save me $11k in the future...but my safety cushion is good for 2 months currently. If I restart paying monthly then I cannot continue to save at my normal rate of 35% -or- I can take a chunk out of my savings cushion and just pay it up front now.

Regarding the emergency savings cushion: as far as health emergencies, I have amazing and affordable health insurance with the healthcare group I work for so I am not too worried in that regard. I'm 33 without children. Work hours are starting to increase since I work in a surgical specialty, which is finally picking up more cases. Also, finding work as a PA is fairly easy (well COVID-19 might have changed that too...) so I don't imagine I will be dipping into my savings cushion soon.

Any thoughts would be appreciated!
"Opportunity is a haughty goddess who wastes no time with those who are unprepared." George S. Clason

tashnewbie
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Joined: Thu Apr 23, 2020 12:44 pm

Re: hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

Post by tashnewbie » Sat May 23, 2020 10:08 pm

Are you seeking PSLF for the federal loans?

What are you doing with the 35% monthly savings? Is that after-tax or is some being invested in pre-tax accounts (HSA, 401k/403b, etc)?

Leemiller
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Re: hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

Post by Leemiller » Sat May 23, 2020 10:36 pm

I would not be able to sleep well with a two month emergency fund. Really getting that to 6-12 months should be priority number one.

Topic Author
kmbti
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Joined: Wed Dec 05, 2018 1:24 am

Re: hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

Post by kmbti » Sat May 23, 2020 11:16 pm

tashnewbie wrote:
Sat May 23, 2020 10:08 pm
Are you seeking PSLF for the federal loans?

What are you doing with the 35% monthly savings? Is that after-tax or is some being invested in pre-tax accounts (HSA, 401k/403b, etc)?
No to the PSLF. The 35% is after tax and after 401k contributions. Continuing to build up an emergency savings and eventual down payment for a house for when we start a family.
"Opportunity is a haughty goddess who wastes no time with those who are unprepared." George S. Clason

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whodidntante
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Re: hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

Post by whodidntante » Sat May 23, 2020 11:31 pm

While I think it's reasonable to prepay a 6% loan, currently it's a 0% loan. So I would use the forbearance period to build up a little money. You can always drop it all on the loan later if you like.

tashnewbie
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Joined: Thu Apr 23, 2020 12:44 pm

Re: hurting savings cushion vs. taking advantage of 0% interest on federal student loan COVID-19 forbearance

Post by tashnewbie » Sun May 24, 2020 8:29 am

kmbti wrote:
Sat May 23, 2020 11:16 pm
tashnewbie wrote:
Sat May 23, 2020 10:08 pm
Are you seeking PSLF for the federal loans?

What are you doing with the 35% monthly savings? Is that after-tax or is some being invested in pre-tax accounts (HSA, 401k/403b, etc)?
No to the PSLF. The 35% is after tax and after 401k contributions. Continuing to build up an emergency savings and eventual down payment for a house for when we start a family.
I’d prioritize beefing up the EF to at least 6 months. Then I’d probably throw any extra money at the loans. So maybe take this forbearance time to build EF and then aggressively pay off the loans?

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