Welcome to my blog on Student Loan issues!
There is so much going on right now that student loan borrowers really need to know for their own financial health and planning. We’ll jump right in to the protections that Congress just passed as part of the CARES Act for Coronavirus relief.
The CARES Act provides a number of important relief measures, described here:
INTEREST RATE ABATEMENT
Interest is set at 0% for federal Direct Loans for the next few months. This doesn’t give any meaningful relief to people who can’t make their payments, but it’s nice anyway.
This benefit ONLY applies to Direct Loans, and a subset of FFEL loans and Perkins loans. If you don’t know what kind of loans you have, log in at www.studentaid.gov to see a breakdown of your loans.
PAYMENT MORATORIUM (AUTOMATIC DEFERMENT / FORBEARANCE)
Like the interest rate abatement, payments on Direct Loans are going to be automatically suspended through September 2020. Your loans should already be showing a zero payment due if you have qualifying loans. Again, qualifying loans are Direct Loans and the FFEL and Perkins loans that are held by Dept of Ed.
What this means for Direct Loan Borrowers
A few important things to know:
- You don’t have to ask for the payment abatement to be applied to your account. This is a change from the news coming out last week.
- If you are on PSLF, the non-payments for the next few months WILL apply toward your 120 month countdown to forgiveness. That’s a huge benefit.
- It appears that the non-payments for people already in IDR plans will count toward your IDR forgiveness, though it’s likely still pretty far away.
- IDR recertification deadlines will be pushed out 6 months.
If you are in Default on your federal loans
- Now would be a good time to resolve your default. You can file a consolidation form, assuming your loans are eligible for consolidation (not previously consolidated), and get the benefits of zero interest or payments once the consolidation goes through, usually after 30 to 90 days.
- If you are in an active rehab already, your rehab payments will stop being pulled, AND the payments will count toward your rehabilitation program.
What if you have FFEL loans?
FFEL lenders don’t have to give any benefits. I am aware that there are different programs emerging, including a 60 days of “disaster forbearance” on request. Check your servicer’s website to see what is being offered to you.
You might consider consolidating to Direct Loans to get the benefits of zero interest and payment abatement. Note that you will lose any accrued IBR time if you consolidate, however.
If you have FFEL loans and have suffered a decrease in income, you could recertify your IBR now for a lower payment to keep accruing time toward forgiveness while paying less money out. IBR payments can be as low as $0, depending on income and family size.
What about Private loans?
For loans that have no federal involvement, there are no guardrails. That said, if you are facing default, inquire with your servicer regarding COVID-19 forbearance programs. If you can avoid using your general forbearance, that’s preferable.
If you have a specific question, don’t hesitate to reach out for more information. If you need help navigating your student loans or your overall debt situation, please contact me to schedule a consultation.