Still waiting for your student loan payments to resume? Stash your cash in the best savings account

For the 8 million student loan borrowers whose payments have been suspended since July, redirecting those funds to a high-yield savings account can be a great way to make money while you wait. Top rates exceed 5.00%, but may not be as high once loan repayments resume.

The interest-free forbearance applies to borrowers enrolled in the Biden administration’s Savings for a Valuable Education (SAVE) student loan repayment plan, the legality of which is currently under review in federal court. Meanwhile, those enrolled in SAVE are in limbo: borrowers are not obligated to make payments on their debt during the grace period, but if they choose this option, they also make no progress on repaying their debt.

This is especially frustrating for registrants Public Service Loan Forgiveness (PSLF)that requires you to make payments while working for a government or nonprofit organization. During forbearance, PSLF enrollees do not receive loan forgiveness credit.

Although switching to previously discontinued Pay what you earn (PAYE) or Repayment depends on income (ICR) may be an option this fall for people who want to resume payments as soon as possible, others prefer to wait for the court’s decision, which may another six months– reports the Ministry of Education.

Pay yourself while you wait with a high-yield savings account

The average monthly student loan payment is $500. Instead of spending this money while your loan is in forbearance, consider putting it into a high-yield savings account.

The best high yield savings accounts they offer APR up to 5.50%. After six months of saving $500 a month at this rate (and not withdrawing), you’ll have earned $33.74 in interest, for a total balance of $3,033.74. Not bad for maintaining full access to your money during this period.

Please note that there is no guarantee when student loan repayment will resume. This may be sooner or later than six months. However, if you continue to save the payments you would have made, your money will continue to grow. Then, once you resume, you can pay off a large portion of your student loan debt early or pick up where you left off and invest your savings elsewhere.

Consider “buying back” your lost months of PSLF credit

If you are one of the PSLF borrowers whose payments were stopped while you were employed by a government or nonprofit organization, you may be able to “buy back” some of the lost months.

To be eligible, you must already have 10 years (120 months) of qualifying employment required by the PSLF program, and purchasing the months in forbearance or deferment will supplement the 10 years of required payments. If your redemption request is approved, you will have 90 days to repay the remaining loan balance.

Of course, you’ll need to have funds available for that final payment, which is another reason why it’s smart to save the money you would use for payments in a high-yield savings account.

Ultimately, the best way to protect yourself against the uncertain future of student loan forgiveness is to start building a dedicated account savings fund. This way, no matter what happens, you will be prepared to adapt.

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