How to avoid drowning in student loan debt during coronavirus, according to a financial expert

Refinancing can help borrowers pay down their student loans faster.

Millions of consumers have lost their jobs due to the impact of the coronavirus pandemic and have been forced to rely on their savings and unemployment funds to pay their bills as lenders gave temporary reprieves on payments.

Student loan borrowers are facing an uncertain economic future as the employment market remains murky. The borrowers who already have federal student loans have been able to reap the benefits of some cost-savings since Congress suspended payments and interest on these loans through September 30 via the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. The extension of the CARES Act repayment pause is still being debated, though President Trump did sign an executive order on August 8 to continue the halt through the end of the year.

Consumers can follow these four tips to avoid accruing more student loan debt. 

1. Start by paying off your private student loans first

The interest rates for private student loans are often higher than the ones offered by the federal government. Federal student loans also offer other protections that are not offered by private lenders, such as income repayment programs, forgiveness or deferment programs.

Undergraduate students who received direct subsidized or unsubsidized loans after July 1, 2020, received a fixed interest rate of 2.75% while parents who obtained a Direct PLUS loan saw a fixed interest rate of 5.3%.


2. Refinance your student loans

Shop around and compare rates for both variable and fixed-rate private student loans. Borrowers should consider refinancing their student loans since the market is currently offering lower private student loan rates.

Online marketplace Credible can help you compare student loan refinance options and find the best rates currently available. A snapshot of fixed-interest and variable rates on Credible has rates ranging from as low as 1.99% to 4.54%.


Refinancing student loans can lower your monthly payments and that extra money can be used to pay down higher-interest debt such as credit cards, said Leslie Tayne, a Melville, N.Y., attorney specializing in debt relief. 

Borrowers with variable interest rates can refinance their student loans and switch to a fixed rate, especially when rates are very low. This strategy is twofold beneficial to the borrower since it can reduce costs while also avoiding monthly payment fluctuations, she says. 

An analysis of over 17,000 student loan refinancings conducted during the past four years and facilitated by the Credible marketplace found that during June:

Rates on 10-year fixed-rate loans averaged 4.48%, down 26% from a July 2018 peak of 6.05%

Rates on 5-year variable-rate loans averaged 2.95%, down 37% from a September 2018 high of 4.68%.

You can see the current fixed and variable interest rates from multiple lenders at once by visiting Credible’s rates table.


3. Make extra payments to your student loans

Borrowers who have extra income from a part-time job or tax refund should consider making additional payments to their student loans. If you have extra room in your budget because you paid off a credit card, use the additional cash flow to make an extra payment or pay more than the minimum amount. Paying off your student loans sooner helps people “save the most money over time,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. 

You can determine what your new monthly payments could be by using this online student loan refinancing calculator


“The goal here is to make additional payments that are applied to the principal of the loan, so it’s important to specify to lenders that you wish to make a principal-only payment,” Tayne said. “Depending on the lender, merely making additional payments each month could mean that the amount is going towards interest or other fees and not the original balance.”

4. Pay down or refinance other debt

When consumers pay down their debt, they can raise their credit scores. A higher credit score can lower your borrowing costs or help you obtain balance transfers at lower interest rates so that more of your payment each month goes toward the principal or the amount you originally borrowed.

Borrowers who have high credit card balances might consider prioritizing paying it down first over their student loan debt, Tayne said.

“High credit card balances could quickly grow if only minimum payments are made each month, as a result of compound interest,” she said. 

Students starting college in the fall should create a budget for their expenses, consider renting their textbooks, look for a part-time job to save money on other costs and use the proceeds from their student loans only for essential items such as food or transportation. Limiting what you borrow from student loans is critical. “Ask other students what their budgets are and you’ll have a sense of what kind of expenses to expect,” Tayne said. 

Credible’s online tool can help both students and parents shop around for private student loans and compare them to get the best interest rates and terms. The tool allows students to compare loan rates from multiple lenders at once without affecting their credit score.