Issue #65: I suggest you break this major money rule right now (really)

October 21, 2020 // ISSUE #65

Hi y’all —

I like to think that I’m a bold woman who does what she wants and doesn’t apologize for it. But in reality, I am a devoted rule follower.

My obedience would make me a terrible contestant on The Bachelor. I’d never interrupt another girl’s conversation with the lead so I could steal him for a sec. I’d never sneak over to his hotel room to have a midnight chat about whether I’m there for the right reasons. I’d certainly never pull him to the side on a group date for an impromptu makeout sesh while we’re supposed to be modeling bikinis in a waterfall or learning Backstreet Boys choreography or whatever.

There are rules against that sort of thing. And in my opinion, rules are NOT meant to be broken.

That’s why my friends were so surprised recently when I suggested they stop making their regular student loan payments so they could save money during the pandemic. Skipping a bill amounts to flaunting the system, which directly contradicts my love for rules. They trusted me, but now I want to make sure I didn’t mislead them.

So I decided to check with the experts. Is it bad to skip a student loan payment?

Nicole Stovall, consumer lending manager with Affinity Federal Credit Union, explained that there’s a two-part answer here. There’s the scenario for non-coronavirus life, and then there’s the answer for 2020.

Let’s start with normal life. Stovall said that although every person’s situation is different, “there’s an expectation” that borrowers will make on-time payments. Because payment history is such a big influence on my credit score, missing a bill can come with pretty severe consequences.

“Your lender is going to report you to the credit bureaus,” Stovall adds. “You’re going to see a drastic reduction in your credit score just for one missed payment.”

The timeline for when I actually see that impact varies based on the type of student loan I have. Federal loans become delinquent the first day after I miss a payment. The servicer will report it to the credit bureaus after 90 days, and later it could go into default. Private loan policies are often stricter. They depend on the specific company I’m dealing with and may involve late fees.

Some lenders will offer deferment or forbearance if I contact them and prove financial hardship. These options allow me to temporarily postpone my student loan payments.

“The notion of skipping is never a good idea,” says Stacey MacPhetres, a college finance consultant with Bright Horizons. “But there are ways of doing it that won't harm you long-term.”

Now, onto the unusual situation that is 2020.

Thanks to the pandemic, mass layoffs and the general awful state of the economy, the government put some student loans on hold this spring. Federally held student loans were automatically placed into administrative forbearance, meaning borrowers were not required to make payments on them for a set period of time. Interest rates were also set to 0%, meaning people weren’t penalized for taking advantage of the pause.

Trump recently extended this policy through the end of the year, so “you are under no obligation to make any payments right now,” MacPhetres says.

Even though they don’t HAVE to, she recommended people who can afford to still make their regular student loan payments do so. Because interest isn’t accruing, the loan amount isn’t growing. Payments will go directly toward reducing the principal — AKA paying off the loan faster. Nice.

That’s where my advice to friends comes in. Life feels so uncertain that I proposed they hold onto the money and instead beef up their emergency fund. They'll have a nice safety net. If everything works out OK, they can still make a big dent in their student loans right before Trump unpauses things.

Remember: This only applies to federal student loans. Private loans are another story. Stovall said many lenders are offering forbearance options to customers during the pandemic, though interest will likely accrue.

“I really don’t know of anyone who’s said, ‘No, you have to make your payment,’” she adds. “Every financial institution out there has said, ‘What do you need? How can we help you?’”

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

In non-coronavirus times, skipping a student loan payment is bad and can wreck my credit. It’s less harmful during the pandemic due to special policies designed to relieve pressure on borrowers, but the details hinge on whether my loan is federal or private.

One tip is always applicable: I should never ignore my lenders. Coronavirus or not, if I’m in a tight spot, I should contact them and tell them I’m struggling.

“Most of the time, if you’re communicating with your lenders, they’re going to work with you,” MacPhetres says.

via GIPHY

RECEIPT OF THE WEEK

check out this crazy celebrity purchase

via Instagram

Rapper Logic bought an ultra-rare Pokemon card last week, dropping $183,812 on a first-edition Charizard. Don’t roll your eyes just yet: The backstory is actually very sweet. Logic explained in an Instagram post that he couldn’t afford Pokemon cards as a kid — “I remember even trying to trade food stamps for [them]” — so he’s enjoying it now. Logic said it’s “like buying back a piece of something I could never have.” Now that’s an evolution.

INTERNET GOLD

five things I'm loving online right now

1	Today in cozy blogs, we have Store-Bought Is Fine, which follows a guy named Trent as he cooks all 1,200-plus of Ina Garten’s recipes. Trent recently made the Barefoot Contessa’s pineapple margaritas, split pea soup with crispy kielbasa and parmesan thyme crackers — and it looks delicious. Yum.
2	Kind of obsessed with Nicolas Cage’s quarantine lewks.
3	Did you hear the one about the parrots who can’t stop swearing? A British zoo had to separate five birds — Billy, Eric, Tyson, Jade and Elsie — because they’re cursing in front of visitors. The profanity is not the problem so much as the groupthink is: “With the five, one would swear and another would laugh and that would carry on," the zookeeper told BBC News. “[If] I end up with 250 swearing birds, I don't know what we'll do.”
4	I loved this piece following a Mashable writer down the rabbit hole of attempting to recover his Myspace profile. And, just for devoted Dollar Scholar readers, here is an exclusive screenshot of my own profile.
5	Happy fall! It’s Gilmore Girls Rewatch Season, and by that I mean it’s Jess Mariano Appreciation Season. Thank you goodnight.

401(K)ITTY CONTRIBUTION

send me cute pictures of your pets, please

via Lauren Chapell Harris

Meet Sigley, who is dressed as my fav, Baby Yoda. With federal student loans on pawse, Sigley is working to pay down the purrincipal.

Gotta go dig into Clare/Tayshia’s season.

See you next week.

Julia

P.S. What’s happening with your student loans? What’s the most embarassing thing you uploaded to Myspace? Are you Team Dean, Team Jess or (vom) Team Logan? Send feedback to julia.glum@money.com or @SuperJulia on Twitter.

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Issue #65: I suggest you break this major money rule right now (really)

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