Student Loan Extension?
TLDR: Biden administration is considering extending the student loan freeze past January 31st, 2022.
If you know me, you probably know two things: 1) that I have a ton of student loans, and 2) that I’ve been religiously following the student loan events in the US.
Quick Background: student loan payments and interest accruals have been paused since the beginning of the pandemic, and the pause was set to end on January 31, 2022. This meant that whatever your payment day in February would be the first time you made a student loan payment in almost 2 years.
President Biden and his administration were very firm on restarting payments in February 2022. However, now with the Omicron variant and the rising number of cases, the Biden administration is considering extending the pause.
Personally, I’m waiting until January 25, 2022 to see what the Biden administration is going to do. Once I hear a decision, here are the two paths I’m considering:
If the pause continues: I will continue to invest my money in the market until I hear that payments are due. I’m not sure where the market will go, but my money is not going to grow just sitting in my checking account. See below for my thoughts on why.
If the pause ends: I’m planning on selling almost all of stocks and make a lump-sum payment. After that, I will make large student loan payments with the extra cash flow that I have every month. My hope is to finished with my student loans within 4 years (around 2026).
Here is the link to the Politico article discussing the deliberation.
My Thoughts
While we should only invest if we have established cash flow at the end of each month and long term goals, I made a calculated risk to take advantage of the student loan pause by cutting back on all my expenses and investing every single dollar I had on safer ETFs (“Exchange Traded Funds”). My calculated risk turned out to be right because the market began to trend upwards and the student loan pause ended up being almost two years. However, things could have gone horribly wrong and during that entire time I was living with anxiety every single day. These were some of the uncertainties and questions that I was facing:
Would the student loan pause end up being only a few months?
Would the market go down because of the pandemic?
What would happen if I lost my job?
If I did lose my job and the market tanked, how would I pay for my expenses?
Would I be okay if I just lost all my money?
Now that two years have gone by, I took some time to reflect on: was the anxiety really worth it, and how I could make myself more comfortable in these situations. There are two cliches that I would hear a lot, and while in the moment they were so annoying to hear, I began to see the real truth behind them:
Scared money don’t make money.
I’m really not a fan of how it sounds, but it’s a very truthful statement. The reason why wealthy people continue to make money is because they always have additional cash flow that they aren’t afraid to lose. For example, if you are a billionaire, would you really be scared to invest $1,000 or even $1,000,000, if you knew that your ROI (“Return On Investment”) could 10x? Your initial investment is really nothing compared to how much you have. Conversely, if you are investing money that you don’t have, hoping it will increase, you will be living with anxiety and make emotional decisions that will end up hurting you. So for the next time around (likely after paying off my student loans), I will save a larger emergency fund (6 to 8 months of expenses) so that I’m not afraid to invest the extra cash flow that I have.
Time in the market is better than timing the market.
I was waiting for the market to drop before investing because I wanted to buy stocks at a lower price. However, the price would just not drop, and if it did drop, I didn’t realize until it was too late. So I decided to buy my ETFs at whatever price and DCA (“Dollar Cost Average”) every week. Again, I didn’t know that the pause would be two years (which was super lucky), but I realized that the longer I kept my money in the market and I consistently invested, I was limiting my exposure and volatility. Yes there were months where the market dropped a lot, but overtime (especially over 5 years, 10 years, or 20 years) the market trended upward and I made gradual gains.
I was fortunate enough that I had the funds to invest and my calculated risk panned out because I was definitely in a place where I could have lost a lot of money. However, if we already have an emergency fund (6 months of expenses), we have additional cash flow each month, and we won’t be needing the money for next 5 to 10 years, we really should be thinking of ways to grow our money rather than hoard our money (or even worse spend our money on things we don’t need).
Thanks for reading! Have a blessed day!