Student loan borrowers have 4 more months without payments. How to make the most of the extra cash

• For most borrowers, student loan payments won't be due until 2022.
• Experts weigh in on the best ways to spend the extra cash until then.

Life without student loan payments has come to feel normal for many.

Borrowers, after all, haven't needed to make a payment on their debt since March 2020, or for nearly a year and a half.

But when the White House announced its most recent extension of the break last month, it said that it would be the final one.

That means borrowers have just four more months without having to pay those bills.

The typical student loan payment is around $400 a month, according to higher education expert Mark Kantrowitz.

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CNBC spoke with some experts about the best ways to handle that extra cash before next year.

1. Add to your emergency savings

The pandemic has taught us how important it is to have a healthy savings account to fall back on.

People should try to build up at least six months' worth of expenses in cash should they have to live through a period of unemployment, he said.

To get the best return on your cash, keep your money in a high-yield savings account, experts say.

It's worth shopping around with different banks to find the best offer. The average online savings account rate is 0.45%, while it's just 0.13% with traditional brick-and-mortar banks and credit unions, according to DepositAccounts.com.

"It may not seem like much, but $100,000 earning 0.50% is $500 a year," aid Allan Roth, founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado.

You'll just want to make sure any account you put your savings in is FDIC-insured, meaning up to $250,000 of your deposit is protected from loss.

2. Address credit card debt

With interest rates on most federal student loans at zero, it's a good time to make progress paying down more expensive debt.

The average interest rate on credit cards is currently more than 16%.

However, make sure you have enough in your emergency savings account before you address credit card debt, said Ted Rosman, an industry analyst at Creditcards.com.

That's because your credit limit shouldn't be relied on as a safety net.

"Many people had their credit card limits cut unexpectedly over the past year as lenders got especially worried about risk," Rossman said.

But assuming you have an adequate cash cushion, knocking down credit card debt can save you a lot of money.

Rossman provided an example: If you're carrying $5,500 in credit card debt and make only the minimum payments each month, you'll be stuck paying for more than 16 years and shell out an extra $6,163 just in interest, assuming your getting dinged the average fee.

If you dedicate an extra $400 per month for just the next four to that balance, however, it'll trim almost three years off that schedule — and you'll save $2,162 in interest by doing so.

Morgan Hopkins, a director of political strategies at a national nonprofit, has paid off more than $17,000 in credit card debt during the payment pause for student loan borrowers.

And that's opened other doors for her.

"I'm able to save more, invest more in retirement," Hopkins, 32, said. "It's such a relief."

3. Consider still paying your student loans

If you have a healthy rainy day fund and no credit card debt, it may make sense to continue paying down your student loans even during the break.

With interest temporarily suspended, any payments will go directly toward your debt's principal, potentially shortening your repayment timeline.

"You could continue making payments each month by contacting your servicer, or save the money and make a lump sum payment on your highest-interest loan before interest accrues again when repayment restarts," said Anna Helhoski, student loan expert at NerdWallet.com.

There's a big caveat here, however. If you're enrolled in an income-driven repayment plan or pursuing public service loan forgiveness, you don't want to continue paying your loans.

That's because months during the government's payment pause still count as qualifying payments for those programs, and since they both result in forgiveness after a certain amount of time, any cash you throw at your loans during this period just reduces the amount you'll eventually get excused.

4. Other options

Some borrowers may want to invest the extra cash. They'll likely thank themselves later for doing so. The S&P 500 Index is up more than 20% for the year.

Another possibility: If you're financially comfortable during the pandemic and it doesn't make sense for you to continue paying down your student loans, then donate the extra cash.

You can make sure an organization is reputable using tools like the Better Business Bureau's Wise Giving Alliance or Charity Navigator, Helhoski said.

If the charity is registered as a 501(c)(3), you'll even be eligible for a tax break.

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