The COVID 19 pandemic has created uncertainty and fear around the world.
Many people are concerned not only about their health, but the health of their finances.
One area of particular concern is that all of the shutdowns and closures have made it impossible in many cases to have a stable income.
For most people, their biggest monthly payments are their home mortgage or rent, and their student loan payment.
Many mortgage companies are offering temporary deferments of payments, or other aid to those affected.
So, what can you do about your student loans?
The Coronavirus Aid, Relief, and Economic Security Act
First and foremost, you need to determine if you qualify for relief.
The Coronavirus Aid, Relief, and Economic Security Act or CARES Act has was passed in March 2020 to provide financial relief for anyone with a federal student loan.
You will need to visit the StudentAid.gov website and log in with your FAFSA login to check if you qualify for relief. When you log in, you’ll see a list of your federal student loans; these may also be labeled as a “Direct” loan. If your student loan is “federally owned”, you will qualify for all the current options for student loan relief.
So, now you’ve determined that you qualify, what does it mean?
Simply put, all federal student loan payments will be paused until December 31st, 2020. This means that your loan balance will be frozen until you start repayments in January 2021.
If you check your online service portal, you should be able to see that there is no payment due, and you may also receive communications from the Department of Education confirming your payments are suspended.
So, if you don't have a steady income and cannot make payments during this period, it is acceptable to not pay down your student loans and focus on covering your household essentials such as food, rent, and utilities.
If your income has remained steady, however, and you’re in a good position with an emergency fund in place, you can take advantage of this loan freeze by paying down some of your loans.
Start with the highest interest loans, and the entire payment will go towards the principal balance, reducing your loan more quickly than with your typical payment schedule.
Just be sure that you are financially stable before you start putting additional cash towards your student loan debt.
Non Federal Student Loans
Although the CARES Act only covers federal student loans, if your loans are non federally held, there may still be some relief. The government has created guidance regarding non federally held loans that may provide financial relief for you.
If you hold a non federally held Perkins loan, you may be granted a three month forbearance. Your loan servicer offers this provision if you are unable to pay due to a pandemic related issue. You will need to call and ask for this, and beyond the three month period, you will need to submit documentation.
Unfortunately, unlike with a federal loan, interest will accrue during your forbearance.
Non Federal FFEL lenders have the option of following Federal guidance to suspend payments. You will need to check with your loan servicer to see if they are offering this option.
Other Student Loan Relief Measures
If you are still struggling, the Department of Education has announced an automatic suspension of payments if the borrower is more than 31 days delinquent. This applies to delinquencies on March 13, 2020 or if you become delinquent during the pandemic. This provides a safety net for student loan holders during this national emergency.
The Trump Administration has announced that collections for loans in default will be stopped, and this will be retroactive back to March 13, 2020. This is in effect until further notice, so collection activities will be halted. This includes seizing tax refunds or social security benefits, stopping collection phone calls and wage garnishments. There is no current end date for this relief, other than when this National Emergency is over, but it could provide you with some breathing space.
The government has also created an income driven plan recertification delay. If your deadline for recertification is due between now and September 30, you can enjoy an automatic six month extension. If you don’t already have an income driven repayment plan, you will need to consider your options carefully before the pause ends in September.
Another relief measure applies If you receive benefit payments from an employer that counts towards a student loan, some of this may be tax free until the end of 2020. The CARES Act has a provision for employers to pay up to $5,250 of qualified student loan payments either to you or directly to your lender, and it will not count as income for the remainder of 2020 on your W-2. This also includes direct payments for tuition, fees, and books.
This provides a huge benefit to making a massive dent in your student loan principal. It may be a good idea to talk to your HR department to see if they can provide any student loan repayment benefits. If possible, get them signed up as soon as possible, so you can take full advantage of this situation.
Waiver Of Interest Confusion
As part of the Emergency Declaration, student loan interest will be waived for the duration of the proclamation. At the moment, that date is September 30, 2020. While this has provided relief for those with student loan debt, it has also caused some confusion.
The waiver applies to federally owned loans for the duration of the declared emergency, but this can be very vague for many people. Many people don’t actually know who owns their student loan. Some Perkins and FFEL loans are included in the federally owned category because the government purchased some loans from private lenders during the Great Recession.
To check if your loan qualifies for the interest waiver, you will need to check your StudentAid NSLDS file. At this point, all lenders will have updated online portals, so if your loan is showing 0%, you have received the interest waiver.
While it may take loan servicers a little time to process the interest waiver, the Department of Education has stated the waiver will be retroactive to take effect from March 13, 2020, regardless of when it is implemented into specific systems.
Options For Lost Income Due To The Pandemic
While the relief measures could be helpful for the next six months, you will need to develop a plan if you have lost income due to the pandemic and related closures, quarantine, and lock down.
Fortunately, there are some options to help you get back on strong financial ground.
Consider Income Based Repayment Plans
As we touched on above, the first and possibly the best approach is to sign up for an income based repayment plan. You’ll need to do this before the six month deferment period ends, but it will provide a simple solution.
If your income has dropped to a low level or is at $0, under these plans, your monthly payment will be $0. As your repayments are tied to your actual income, which will provide some flexibility, so you don’t need to deal with your student loan payments as you’re trying to deal with the loss of income.
You will need to call your lender or visit StudentAid.gov to apply for an income driven payment plan, and you may need to certify your income. This may require sending a letter that states your employment status and that you currently have no income or your income has dropped significantly.
This is a great option for most student loan borrowers, particularly if you are looking at Public Service Loan Forgiveness.
Look At Unemployment Deferment
This is a lesser option, but it could still be viable, particularly in the light of interest waivers. You can ask for unemployment deferment for as long as 36 months, but you will need to recertify your status every six months.
This could provide a helpful avenue if you are still unemployed once the six month deferment period ends. However, you will still have responsibilities to qualify. You must be seeking full time work at any responsible level and salary in any field. You will also need to register with an employment agency, either public or private, if you have one within 50 miles of your address. Even if you’re not eligible for unemployment benefits or your eligibility has expired, this could provide you with an option.
However, you need to note that interest will still accrue during the deferment. However, interest on student loans is waived during the Emergency Declaration. Additionally, if you want to go for PSLF (Public Service Loan Forgiveness) you need to be making eligible payments. So, if you defer, this period will not count towards PSLF, unlike if you make a $0 payment on an income driven repayment plan.
Forbearance
Another possible option is to request a forbearance, but this should be considered a last resort. A forbearance may not make sense for most people, but it can be an easy way to immediately stop your payments.
There are some benefits that can be gained from a forbearance, but you will need to use extreme caution and take special financial planning measures.
Watch Out For Student Loan Relief Scams
Since these relief measures can seem quite complicated, you are going to have to be alert for scams.
If you’re contacted to pay a fee to suspend your student loan payments, you need to be aware that this is a scam.
You will not be asked for any fee to suspend payments or defer interest.
The federal government relief plans require no action of you, so if someone is asking money to process your information, you should report it to the FTC.
Contact Your Lender
Whether you have a federally owned student loan or a private student loan, if you are experiencing financial hardship, you should contact your lender.
Although the government has released guidance for federal loans, private lenders are assessing the situation on a case by case basis.
Your lender will be able to discuss your options to determine the best way forward.
Should You Refinance Your Student Loans?
If you’re able to make your student loan payment and they are not federally owned, you might want to consider refinancing your student loans. Refinancing could allow you to make your payments lower and give you the benefit of the low rates that are currently available.
If you have federally owned student loans, refinancing will mean that you lose access to the government programs we’ve discussed above and any future programs that could be introduced.
The unprecedented help offered to borrowers due to the COVID-19 pandemic means that if you refinance your federal student loan, you will not qualify for help if your is at risk or you can no longer afford your financial obligations.
Many refinance lenders are instructing borrowers to carefully consider before refinancing a federal loan. However, refinancing remains a solid option for lowering the interest rate on private student loans, if you have them.
Here are some student loan lenders that we have reviewed and recommend.
Company | Loan Types | Terms | Eligible Degrees | Rates |
|---|---|---|---|---|
 | Variable & Fixed | 5 to 25 | Undergrad & Graduate | |
 | Variable & Fixed | 5, 7, 10, 15, 20 | Undergrad & Graduate | |
 | Variable & Fixed | 5, 7, 10, 15, 20 | Undergrad & Graduate | |
 | Variable & Fixed | 5, 7, 10, 15, 20 | Undergrad & Graduate | |
 | Variable & Fixed | 5, 7, 10, 15, 20 | Undergrad & Graduate | |
 | Variable & Fixed | 5 to 20 | Undergrad & Graduate | |
 | Variable & Fixed | Varies by lender | Undergrad & Graduate | |
 | Variable & Fixed | 5 to 20 | Undergrad & Graduate | |
 | Variable & Fixed | Varies by lender | Undergrad & Graduate | |
 | Variable & Fixed | 5 to 20 | Undergrad & Graduate |
If you decide that you would like to refinance, be sure to check offers from different lenders like the ones above, or others, to ensure the best deal.
Many lenders use a soft credit check to prequalify you, so you can check your new interest rate. You can also refinance all of your private student loans in one package to make a single payment each month, making it easier to manage.
Although many people refinance student loans just once, there is actually no limit to how often or how many times you refinance. Refinancing again could help you to save even more money, but there are some things to do before you start the ball rolling.
Review Your Interest Rates
Many people refinance to get a lower rate, but there are limits to how low of a rate you can get. You will need to check what rate you’re actually paying on your loans in order to make the best decision.
Look at each loan to check the rate; you will need to determine if you want to refinance all, or only some of your loans.
Look At Your Credit Report
Before you apply for a refinance loan, you will need to look at your credit report and history. You can do this for free with AnnualCreditReport.
If your account shows that you’ve not missed any monthly payments and your debt has been paid down, it is likely that you will qualify for loans with far lower rates.
Assess Your Finances
If your income has increased in recent years, you’re more likely to qualify for a lower interest loan. If you’ve had a jump in salary, it could help you to secure a lower rate, and you could save even more money.
You will also need to look at your credit card debt. It is best to clear your credit card debt if possible, as this will not only carry a higher interest rate compared to your student loans, but it will reduce your debt to income ratio.
Check The Fine Print
Finally, it is important to check the fine print to ensure that you won’t be hit with a penalty.
You have a legal right to pay off a private or federal student loan ahead of schedule without a prepayment penalty, but some lenders do have origination fees.These fees may negate the savings of your lower rate. So, it is crucial that you do your research and ensure that you are completely comfortable before you agree to the refinancing deal.
There Is Help Available For Your Student Loan Debt Due To COVID-19
This is a very trying time, and many people are worrying about their health, the economy, and their personal finances.
If you’re concerned about your student loans, be aware that there is help. It's a good idea to contact your lender to discuss your options directly. Try to familiarize yourself with the current policies and any updates and then call your lender.
As with any financial arrangement, whether it is student loans, credit cards, or mortgages, it is important to keep in touch with your lender rather than stopping payments and dodging communication. Keeping the lines of communication open will help you to avoid fees, interest, and ultimately defaulting on your debt.
For further information about refinancing your student loans, or student loan forgiveness, please read the articles below.
- Ultimate Guide To Student Loan Forgiveness: Programs To Discharge Debt
- 10 Best Places To Refinance Student Loans
Have you taken advantage of student loan relief due to COVID-19? Is it helpful to you in your situation?
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