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This is 'the No. 1 way to get out of debt faster,' student loan expert says — but it may not be right for you

Rushing to pay off student debt may leave you financially vulnerable, especially right now.

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Borrowers haven't had to make a payment on their federal student loans since March 2020, after the Covid-19 pandemic led to a pause on repayment and set the loans' rate to zero. Payments were originally set to resume in October, but earlier this month, the Biden administration announced it would extend the pause until January 31, 2022. This will be the final extension, the Department of Education announced.

"As our nation's economy continues to recover from a deep hole, this final extension will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment," Education Secretary Miguel Cardona said in a statement.

With a firm date on the calendar, some borrowers are looking ahead to repayment and wondering how they can reduce their debt faster. "By far and away, the No. 1 way to get out of debt faster is to pay extra," says Travis Hornsby, a chartered financial analyst and founder of financial advisory firm Student Loan Planner.

Any extra money you can contribute towards your loans will now go further because the federal loan interest rate is set at zero until the moratorium ends. Provided that you weren't behind on payments or on a repayment plan that didn't cover all of the interest accrued, every dollar you pay could go towards the loan's principal.

However, rushing to pay off student debt may leave you financially vulnerable, especially right now. Here are the pros and cons of rushing to pay off your student loans ASAP, according to experts.

An extra $25 a week could help reduce your debt ...

"What you'll find is if you throw in an extra hundred dollars a month on your student loan, that's actually for most people going to have a way bigger impact than refinancing," says Hornsby.

The average amount of debt for student loan borrowers of all ages is $39,351, according to August data from Educationdata.org. Interest rates vary depending on what type of loan you have, and when you borrowed that money. The average interest rate among all existing borrowers is around 5.8%.

Based on those figures, with the standard 10-year repayment plan for federal loans, a borrower would pay nearly $433 a month for the next 120 months.

However, if you add an extra $25 per week — so, about $533 a month instead of $433 — you could cut down your repayment time by 28 months and pay off your loan in full in a little more than 7.5 years. You'd decrease the amount of interest accrued over the course of the repayment period from about $12,600 to a little less than $9,500.

If you made extra payments from September through January while the zero rate is still in effect, the impact could be even bigger. Paying $533 per month for those six months reduces the principal to $36,686. From there, you'd have another 7 years of repayment, and pay a total of about $8,000 in interest.

Use Grow's loan payoff calculator to run the numbers based on your own loans.

... but paying student loans down ASAP may not be the best move for you

There's an opportunity cost to paying down debt while federal student loan interest rates currently sit at 0%. You could see a bigger financial impact, for example, if you put that extra cash towards credit card debt with interest rates at about 16% or got started investing for retirement sooner, to harness the power of compounding.

Accelerating repayment doesn't make much sense if your finances haven't fully recovered from the pandemic, experts add. That extra cash could be better used to build an emergency fund or to catch up on other more immediate expenses.

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"What we're telling people is: We want you to get out of debt fast, too. The way to do that while also keeping your risk low, is if you do refinance, do one of these longer-term loans so you can throw extra money towards the loans when you want to, versus having no choice but to do it," Hornsby says.

You could need the money you'd be funneling towards your loans for other expenses during the ongoing Covid-19 pandemic, other experts point out. "I am not recommending that you pay on your loans during Covid, because it just depends upon your needs and your situation. For some people, it makes sense, but not for everyone," says Robin Howarth, senior researcher at the Center for Responsible Lending.

Student loan forgiveness is still under consideration

The other risk in accelerating student loan repayment: President Joe Biden's administration is still considering student loan forgiveness. Biden has asked the U.S. Department of Justice and the U.S. Department of Education to review his legal authority to forgive student debt through executive action. The American Rescue Plan also preemptively made such forgiveness tax free through 2025.

Some lawmakers, including Senate Majority Leader Chuck Schumer, D-NY, and Senator Elizabeth Warren, D-MA, recently renewed their calls for Biden to forgive up to $50,000 in federal student loans per borrower. Biden has expressed support for around $10,000.

In that case, borrowers who accelerated payments could lose out, having paid more than they needed to.

Both Howarth and Hornsby are "cautiously optimistic" about future legislation providing student loan forgiveness. Especially since "The vast majority of these borrowers don't have the means to be aggressive in paying back their loans," Howarth says.

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