Are you struggling to make student loan repayments as a consequence of COVID-19? You’re not alone. A lot of people have found themselves in a situation whereby they are struggling to make monthly payments because of the pandemic. After all, with the social distancing guidelines in place, it has had a drastic impact on the economy. The good news is that there is help available to those that are experiencing financial struggles. With that in mind, in this blog post, we are going to take a look at some of the different options in further depth.
President Trump made an announcement last month regarding student loan payment relief, with good news for those impacted. Back on the 20th of March, the Secretary of Education directed the Federal Student Aid office to give relief to ED-held federal student loans. This relief included setting interest rates to zero percent for 60 days, stopping collections on defaulted loans, and suspending all loan payments. On the 8th of August, President Trump then informed the Secretary that these measures should stay in place for the rest of 2020.
It is important to note that this relief is only applicable to student loans that are federally held. Therefore, if you hold a private loan or any other sort of loan that you use to fund your education, this temporary forbearance may not be available to you. However, we will give you some advice on this later in the guide.
The student loans that are currently covered by the CARES act that was introduced by the government include the following:
To be as clear as possible, the loans that are not covered by the CARES Act at the moment include the following: Perkins loans, FFEL loans that are serviced via a commercial lender, Private Parent Plus loans, and Private Student loans.
To make sure that you are eligible for student loan relief, you should log into your Student Aid account where you can look at the loan lender. If the Department of Education is listed as the lender, the benefits will be yours. Nevertheless, if the scheme does not cover your loan, don’t panic. This does not mean you are out of options.
One solution that is available to you if you have a Perkins loan or a Federal Family Education loan is to combine numerous student loans into the one account, enabling you to get access to this student loan forbearance through opening a federal direct consolidation loan.
This is a type of lending product, which is offered by the Department of Education, that enables you to have all of your student loans in one place so that they can be managed effectively. It also permits you to get access to the student debt relief that is provided by the U.S. Government.
The loan is available for anyone who has specific Perkins loans or Federal Family Education loans, and it won’t cost you anything to open. Sadly, private loans are not a part of this, though.
All of your separate federal education student loans are going to be combined into one with a federal direct consolidation loan. Through doing this, it is going to be a lot easier for you to get access to the repayment suspension that is in place for government loans. As a consequence, you will start your repayments again in 2021. When you do this, it will be a lot easier to make the repayments, as you are only going to need one payment per month instead of paying several different providers in numerous payments. It is easier to manage your money this way, so a lot of people prefer it.
If you are not going to be eligible for the federal direct consolidation loan and you are not eligible for the governmental relief that has been discussed, there are still some other options that you should explore.
If you have a federal family education loan, otherwise known as an FFEL loan, you could be entitled to economic hardship deferment. It is also worth looking into repayments that are income-driven, forbearances, and unemployment deferment. You can get in touch with the provider of your loan for more details about this.
If you are currently on a repayment plan that is income-based, and your income stands below 150 percent of the poverty line, you are not going to need to make any of your monthly payments. If your income has dropped because of losing your job, and you think this could be an option for you, get in touch with your student loan provider as soon as possible to discuss the next steps with them.
There are a lot of people that have taken out loans for their studies that are not government-held. If this applies to you, you will want to be sure that you are aware of your options in this regard. The bad news is that the government has not imposed any legal requirement for companies to adhere to the federal relief that was discussed earlier in the guide. The good news is that a lot of lenders are accommodating and offering relief on all types of loans. For example, there are some lenders that have suspended late payment fees. Some lenders are also offering a payment freeze for a period of three months, yet do note that interest will still accumulate during this period, so you need to think about what is going to be right for you.
So, if you have a loan and it is not government-held, our recommendation is to get in touch with the lender as soon as possible. You should tell them about your situation and they should be able to come to a solution that is suitable for you. We know that it can be difficult to have these conversations about money. However, it is vital to realize that everyone is going to be in the same boat at the moment, and people will be understanding, so don’t feel embarrassed or nervous. We are all in this together after all!
There are a few things that you should be aware of when it comes to making your repayments during this difficult time:
If you are in default on your federal student loan, you may be feeling particularly nervous during this period. If this applies to you, the government is no longer able to implement recovery tactics. This means they cannot take your wages, checks from Social Security, tax refund, or any other form of federal benefit to collect the money that you owe. Therefore, if you are in default with your loan, now could be a good time to work your way out of it. This is because of the suspended federal payments counting toward rehabilitation. It is certainly worth looking at this if you have been behind on your payments for 270 days or more, as this is what counts as being in default.
In the months whereby you do not make payments on your federal student loan, so long as it qualifies for the CARES Act, it will count toward loan forgiveness, this is assuming that your payments would otherwise be eligible for forgiveness.
This is important because the initial guidelines from the Education Department indicated that payments that were suspended would not count toward forgiveness. However, this decision has since been reversed. Because of this, a lot of borrowers have been left feeling confused about where we currently stand.
There are two programs in action that may mean a federal student loan borrower is eligible for loan forgiveness. The first is income-driven repayment plans whereby there are four in place at the moment, with monthly payments capped at 10, 15, or 20 percent of your discretionary income. The other is the Public Service Loan Forgiveness (PSLF) whereby the remaining balance on federal Direct loans will be erased, tax-free, once you have made 120 qualifying monthly payments while working for a qualifying non-profit or the government.
First of all, we would recommend checking your credit reports if you have suspended payment. It was reported in May that Great Lakes Educational Loan Services, which is a federal student loan servicer, reported inaccurate details to the three main consumer credit bureaus regarding almost 5 million borrowers’ loan payments. This information was passed onto TransUnion, Experian, and Equifax, and it had a negative impact on a lot of the borrowers’ credit reports. The payments were reported as deferred when they should not have been, and this caused some people to have a drop in their score. By checking your credit report, you will be able to see any inaccuracies at the earliest opportunity, and this will enable you to rectify them. You can get access to your free credit report once every 30 days at Experian. You can also get free credit reports from TransUnion and Equifax via Credit Karma.
If you have the means to continue making payments, you will be able to do so. You don’t have to suspend your own loan payments. If you are on autopay, you are going to have to manually make your next monthly payment at least if your loan provider has stopped making all automatic payments.
It is important to recognize that the choice is yours in terms of whether you want to defer your payments or not. If you are able to make the repayments, but you do not have any sort of monetary cushion or emergency fund at the moment, it may be better for you to set the money aside for now, especially while this relief is available. After all, we are living in difficult times at the moment, and it really is a struggle to predict what is around the corner. You may sleep better knowing that you have a little bit of money set aside, and this is something that your student loan relief may enable you to do, so it is certainly worth considering.
If you expect to get forgiveness through a repayment plan that is income-driven or you are pursuing PSLF, it really does not make any sense to keep making the payments. The reason for this is because suspended payments now count toward your loan forgiveness, as discussed above, and so you could actually lower the amount you eventually get forgiven by continuing to make payments now.
Nevertheless, should you have a standard repayment plan in place and you feel like your job and consequently your income are stable at the moment, and you don’t have any other high-interest debt, you may want to continue making your payments so that your college debt can be paid off a lot quicker.
So there you have it: an insight into the different options that are available to you should you be struggling to make your student loan repayments during this difficult period. We know that it is a challenging time for everyone at the moment, so if you are struggling to make repayments, it is important to act quickly and take action. Don’t simply ignore the problem and hope that it goes away. We are all in the same boat, and a lot of people are struggling as a consequence, so the U.S. Department of Education (ED) should be understanding and accommodating should you need help.