The unprecedented speed of job losses in the United States due to Coronavirus has left many people unable to manage their debts, including student loans.
While it’s not yet clear when schools or colleges will reopen, there is some relief on student loan debt front. A new federal law, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) provides automatic suspension of principal and interest payments on federally-held student loans through September 30, 2020. These suspended payments will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met. Here are some key things you need to know about how this may affect you.
1. Payments suspended
Interest does not accrue during this time up to September 30th, and not making payments won’t hurt your credit. Each suspended payment will be reported to the credit bureaus “as if it were a regularly scheduled payment,” according to the text of the bill.
Payments on qualifying federal student loans—including those set to autopay—will probably be suspended automatically so there’s nothing you need to do. If you do have autopay enabled, keep a close eye on your student loan and bank accounts to see if next month’s payment goes through. You can disable autopay and switch to manual payments for now, but set a calendar reminder to reinstate autopay before payments kick in again.
The following types of federal student loans qualify for payment suspension. If you’ve taken out federal student loans since 2010, your debt is in the Direct Loan program, which means it’s covered.
- Direct Unsubsidized Loans
- Direct Subsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Federal Family Education Loans (FFEL) held by the federal government
- Federal Perkins loans
Commercially held FFEL loans, as well as Perkins loans owned by the higher education institution you attended, aren’t covered by the legislation. If you have FFEL loans held by Navient, you’re eligible for three months of disaster forbearance, according to the servicer’s website. The forbearance suspends your payments, keeps your loans in good standing, and preserves your credit. But unlike government-held FFEL loans and Direct loans, the forbearance isn’t automatic—you have to request it—and interest continues to accrue while your payments are paused.
If you’re unsure about the type of federal loans you have, you can check by logging in to the National Student Loan Data System. You’ll see a dashboard that lists your loan information, including details about your loan servicer (the company that collects your payments).
It may take time for these changes to be rolled out. Borrowers can likely expect to see their accounts updated within 1-2 weeks, though the exact timing may depend on your loan servicer (check your servicer’s website for details). It’s worth noting that calling your servicer could result in very long wait times so don’t call unless you need to.
There are four major federal student loan servicers. Here’s what each of their websites currently say about payment relief under the CARES Act:
- Great Lakes: “Websites and systems are being updated as quickly as possible to reflect changes in the law. We appreciate your patience.”
- Navient: “We are working to suspend payments on all U.S. Department of Education (ED) owned loans by 4/10/2020. … Once your eligible loans have been updated, Navient will notify you in writing.”
- Nelnet: “Websites and systems are being updated as quickly as possible to reflect changes in the law. We appreciate your patience.”
- FedLoan Servicing: “It may take some time for these benefits to be reflected within your account. Know that these benefits will be applied retroactively, so you won’t be disadvantaged by this delay.”
2. Payments can still count toward loan forgiveness
Borrowers seeking loan forgiveness with the Public Service Loan Forgiveness (PSLF) program or under an income-driven repayment (IDR) plan have scored an extra bonus. Each suspended payment, or nonpayment, during the time frame specified in the CARES Act will count toward forgiveness.
According to the Consumer Financial Protection Bureau, “suspended payments will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met.”
This means even if you aren’t making a monthly payment, you’ll still receive credit as if you are. Think of it as a $0 qualifying payment.
For example, let’s say you’re a physician working toward PSLF. The 6 months of payments for mid-March through September will count toward the 120 payments you need to qualify for forgiveness. Keep in mind the PSLF program requires that you have Direct Loans that are enrolled in an IDR plan. And monthly payments must be made while working full time for a qualifying employer like a government entity or nonprofit organization.
Suspended payments also apply to your forgiveness count if you’re on an IDR forgiveness plan. But you’ll need to make 20-25 years’ worth of qualifying payments to be eligible for loan forgiveness. These Coronavirus student loan forgiveness credits can save you a nice chunk of cash, regardless of which forgiveness path you’re pursuing. This benefit is important because freed up money may be needed elsewhere if your family’s income has been impacted by this pandemic.
3. Private student loans & refinancing loans
Unfortunately, the CARES Act doesn’t cover private student loans, including any federal student loans you refinanced through a private lender. If you have a mix of federal and private student loans and can’t afford to make payments on all of them right now, focus on the private loans while your qualifying federal loans are suspended.
If you can’t afford to make payments on your private student loans, contact your lender—it may be willing to work with you by offering a forbearance, which will temporarily suspend your payments, prevent your loans from defaulting, and protect your credit.
However, interest still accrues while your private loan payments are paused, and will likely be added to your loan principal when you start making payments again (this is called capitalization). This could increase your monthly payment amount, as well as the total interest you pay over the life of your loan.
Student loan refinancing can often reduce your interest rate on loans, lowering your monthly payment and total repayment cost. But whether you should refinance will depend on your personal situation. While interest rates are low right now, a new refinance loan may offer you a reduced rate — but you’ll need to qualify based on your income and credit score.
Major private student loan and refinancing companies include:
- Citizens Bank: “If you are experiencing hardship due to the coronavirus or if you have general loan questions, please contact our Student Lending Advisors at (888) 411-0266.”
- CommonBond: “As COVID-19 has been classified as a national disaster, it qualifies for natural disaster forbearance for CommonBond members.”
- Discover: “We have support in place for qualified Discover customers who experience hardship as a result of the outbreak.” The website further instructs student loan customers to call 800-STUDENT.
- Navient: “During this time of national emergency, Navient is offering up to three months of disaster forbearance to qualified private loan borrowers who request it.” (Navient services private student loans in addition to federal ones.)
- PNC: “You may be able to postpone payments for up to 90 days with no late fees during the postponement period. We also have loan modification options available for those who qualify. Please go to www.aessuccess.org and once logged onto your account, select ‘having your payments postponed’ to request assistance.”
- Sallie Mae: “If you are experiencing difficulties during this time, please contact us to discuss your situation. We have assistance options available to you to help you keep your account in good standing during this unique health emergency.”
- SoFi: “If you cannot meet your next payment as a result of being impacted by COVID-19 … Please complete the form here to apply for 60 days of forbearance, with the option to extend.”
- Wells Fargo: “The company … is offering fee waivers, payment deferrals and other expanded assistance for credit card, auto, mortgage, small business and personal lending customers who contact the company.” (“Personal lending” includes private student loans.)
5. Consolidating loans to access Coronavirus student loan benefits
You can consolidate your FFEL or Federal Perkins loans that aren’t owned by the Department of Education into a Direct Consolidation Loan. The new loan would then be eligible for 0% interest and payment suspension. But be aware that any outstanding interest will capitalize and increase your principal balance. Moreover, your interest rate could end up being higher than what you’re currently paying.
Also be aware that you’ll lose all credit toward forgiveness when you consolidate a student loan. So, consolidation may not be in your best interest if you have FFEL loans with years of income-based repayment credit.
Finally, an unsecured personal loan can also be especially useful for consolidating your current debt. When you apply for a loan and use it for debt consolidation, you’re combining all of those outstanding balances into one monthly payment, including your student loan debt. This grouping of debt makes it easier to work out a time frame to pay off your balances without getting overwhelmed.
Final thoughts to consider
As you can see, student loan borrowers now have more benefits to consider when planning for the potential financial impact from Coronavirus. If you have federal student loans that qualify, don’t feel guilty about accepting the suspended payments—even though you could save money in interest by continuing to make payments.
While you don’t need to go through a third-party company to get student loan help, an unsecured personal loan may help fill the gap if you’re hurting financially during Coronavirus outbreak.
Lastly, at any time, even during a crisis, avoid payday loans. Because payday loans have annual percentage rates that can soar above 400% and repayment terms typically around two weeks, borrowers can end up owing a lot more and facing tougher financial decisions than before they borrowed.