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During the COVID-19 health crisis, many Americans are losing their income. Some reports even claim that over 30% could be on unemployment during the peak of the financial crisis we are in.
The most important thing you can do is to get on an emergency budget, take care of your immediate needs and your family.
But those with large amounts of Student Loan Debt have an additional burden to think about as their incomes disappear:
“How am I going to continue paying my student loans?”
Congress just passed the CARES Act into law on 3/27/20 that will go into effect very soon, and promises to give some much-needed relief to student loan borrowers.
But who gets it, who doesn’t, and how does it work?
Student Loan Relief: Who Qualifies?
The CARES Act gives financial relief to anyone who has a Federal Student Loan.
But Jake, how the heck do I know if my loan qualifies?
I’m glad you asked.
Simply go to StudentAid.gov and log in using your previous FAFSA login. This will allow you to see a list of your Federal Student Loans (hint: many of them are labeled “Direct” loans). Some of the FFEL and Perkins Loans are owned by the Federal government as well, but MOST are not.
If your loan is a “Federally-owned” loan, you would qualify for all of the current student loan relief options.
If you hold a state or privately-held Perkins or FFEL loan, or a Private Student Loan….sorry, but you don’t qualify for any financial relief….BUT, there are options for you (scroll down to learn more).
Student Loan Payment Relief
All Federal Student Loans are now going to pause student loan payments until September 30th, 2020.
Let me say that again because it is HUGE.
If you hold Federal Student Loan(s), you will NOT HAVE TO PAY your monthly student loan payment until October 2020.
This means that instead of your balancing going it, it’s essentially FROZEN until after this payment relief is over.
The bill passed on 03/27/20, and may take a week or so to implement. This will be applied automatically to qualified loans. You should see NO payment due in your online service portal once it is in effect.
The Secretary of Education is also required to notify borrowers that will have payments suspended, so be on the lookout for communication from the Department of Education.
What You Can Do
If you have lost your income or otherwise CANNOT make your payments during this period, then don’t. It is perfectly acceptable to NOT pay down your loans and focus on providing for yourself and your family right now.
If you still have steady income AND a decent sized Emergency Fund, I recommend taking advantage of this time and start paying down your highest interest student loan. These payments will go 100% towards principal, and will reduce your balance quicker than your typical payments.
I might even recommend you should pause other extra debt payments during this, since interest on your Federal Loans are calculated on your total balance, paying directly to principal will make a BIG impact on your total interest paid over the life of the loan(s).
Just make sure you feel financially stable BEFORE throwing any extra cash toward your debt.
Waived Student Loan Interest + Penalties
Not only are payments paused for all Federal Loans, but during this time, your loans will not accrue ANY interest (or penalties for not paying).
This means your balance will NOT go up, and you will not be penalized for missing payments through 09/30/20.
For those with LARGE student loan balances, this is welcome news, and will help keep you on track.
What You Can Do
As I mentioned above, you can do nothing, or you can pay extra on your loans during this time.
No matter what, take care of yourself and your family first.
Will This Impact Public Student Loan Forgiveness?
If you are working toward Public Student Loan Forgiveness, these 6 months will still count as 6 payments toward your 120 qualifying PSLF payments. This means you can pay NOTHING, and still have 6 months taken off the PSLF 10-year requirement.
This is great news for those who are working toward PSLF, and will keep you on track for your PSLF date.
What You Can Do
Make sure you keep the other qualifications of PSLF (working full-time for a government agency or qualified non-profit), and make sure you DO NOT refinance your loans with a private lender.
Other than that, you can choose to either continue paying your loans on your regular schedule, or stop and stack some cash instead.
What If Your Student Loans Are In Default (or Delinquent)?
The Trump Administration announced that collections on loans in default will be stopped, retroactive back to March 13th, 2020. This declaration is in effect “until further notice”, and will halt collections activities including wage garnishment, seizing tax refunds and Social Security benefits, and stop collections phone calls.
For delinquent borrowers, the Department of Education announcement automatic payment suspension during this national emergency.
Straight from their website:
“If you’re at least 31 days behind on your payments as of March 13, 2020, or become more than 31 days delinquent after that date, you’ll automatically be placed in an administrative forbearance to give you a safety net during the COVID-19 national emergency.”
With both Default and Delinquent borrowers, there is no current end date other than “when the National Emergency is over.”
What You Can Do
Stay in touch with your student loan servicer during this time. If you are already having a tough time making payments, this is a great time to look at options like Income Driven Repayment (IDR) plans, Deferment, or Forbearance.
Talk to your lender and see what options will help you save the most money right now, and in the long term.
What If My Employer Pays Part Of My Student Loans?
If you are receiving benefit pay from your employer that goes toward your student loans, some of that may be tax-free until the end of the year.
The new CARES Act now allows employers to pay up to $5,250 of your qualified student loan payments (directly to lender or you), and it will NOT count as income on your W-2 for the remainder of 2020.
This also includes payment directly for tuition, fees and books that are being paid by your employer.
What You Can Do
Combining this benefit (tax free income), with the freeze on Federal student loan interest, this is a HUGE win, and can help you knock out a HUGE chunk of principal this year.
I recommend talking to your HR Department and asking if they provide any tuition or student loan repayment benefits. If they do, sign up for them ASAP and take advantage of this unique situation.
Side note: If you are negotiating a job offer, consider this benefit as part of your “offer package”, it can help be a BIG WIN and get you MORE in your negotiations.
What If You Have Private Student Loans?
Unfortunately, your private loans do NOT qualify for this program. But private lenders are taking action during this time, and many are working with borrowers to offer temporary forbearance, temporary interest rate reduction, and pause on payments during this health crisis.
Related: My friend Robert at The College Investor has an updated list of private lenders offering financial relief.
Private student loans were left out of the latest bill, which means you will need to work with your lender(s) directly to find out what they can do for you.
What You Can Do
I recommend contacting your lender directly if you are experiencing financial hardship, and see what your options are. This is the guidance given by many private lenders, and they are taking it on a “case by case basis.”
The other option to consider is refinancing your private student loans. If you are able to make your payments, but want to lower them permanently, right now is a great time to check on rates, especially since interest rates a VERY LOW right now.
If you are considering refinancing to lower your interest rate (and monthly payment), I personally recommend checking out Credible. They compare ALL the top lenders for the best rates. It takes about 2 minutes and requires no credit check.
Bottom Line: Contact Your Lender
If you have any questions on what your options are, it’s best to contact your lender directly. Make sure you understand your options and what the current policies are (maybe re-read this post, or save it for reference), and then get on the phone.
As with ANY debt (mortgages, car loans, credit cards, etc.), it’s best to STAY in touch with your banks and lenders directly, rather than disappear and stop making your payments. Simply keeping the line of communication open can help you avoid interest, fees, and defaulting on your debts.
For more information on Coronavirus and your Federal Loans, check out the FAQ on StudentAid.gov