The Possible Impacts Of Coronavirus On Your Student Loans And College Savings
Thousands of Americans have already lost their jobs and millions more are on the verge of losing their incomes. Most of us are finding it extremely difficult to make both ends meet during this global crisis.
Moreover, the threat isn’t limited to health.
The long-term impacts on the global economy could be absolutely devastating.
As more and more governments urge people to stay at home, a lot of people are worried about their upcoming bills and loans.
Though most of the banks and lenders have stepped up to offer temporary deferment and other similar measures, the impact of this pandemic on your savings and student loans is an important thing to consider.
How Will Your College Savings Be Impacted?
The rise of COVID-19 cases caused a steep decline in stocks, which resulted in an unwanted market correction. Financial experts have raised concerns about the pandemic ultimately leading to a global recession or even depression as international trade and travel have been put on halt until further notice.
Your savings accounts like a 529 savings plan can be at a temporary risk if it has higher exposure to stocks. The savings plans are ideally used to fund a dependent’s higher education.
However, as cash flows tighten, families might be forced to withdraw funds from savings.
Institutions have also been forced to shut down boarding facilities which is also a concern because most families had already made room and board payments for their children. The sudden need to buy last-minute tickets back home or hiring transport has also forced people to withdraw funds from emergency savings plans.
All of these unexpected expenses will force parents and students to rethink how they want to plan the following academic year.
A Ray Of Hope For Existing Student Loans
The Department of Education has been actively tracking the outbreak of COVID-19 and have come up with multiple relief plans for those who are currently stuck with piling student loan debts.
The government has announced various alternatives and solutions if you encounter problems paying your bills and loans or making timely payments.
You are recommended to reach out to your creditors or lenders without any further delay. Call your lenders and servicing staff to discuss your situation with them, decide whether you need more time now, or possibly opt to negotiate payment options.
Financial institutions have been urged by CFPB and other financial regulators to collaborate and support their consumers at this time of need. As per their instructions, most lenders have already listed the guidelines to request a temporary deferment or forbearance on their websites.
Here are some key takeaways from the recent announcements:
- If you have a federal student loan and any Parent loans, you aren’t required to make loan payments until September 30, 2020. You won’t be charged interest for this period. However, Federal Perkins loans don’t qualify for this benefit.
- If you have a private student loan, you need to check with the respective lender. While most private lenders have agreed to defer payments temporarily, it isn’t quite clear about the interest as it varies from lender to lender.
The Impact On New Student Loans, Refinance, And IDR-Plans
In case you’re not largely impacted by the recession but would like to try to access a lower rate, this is just the right time.
On the bright side, most financial institutions have lowered the rates on new loans and other options like refinancing.
The Federal Reserve Board will be announcing interest rates for new federal loans for the academic year 2020-2021 in May. According to some estimates, you might be able to expect a cut of half a percentage point or more in the interest rates charged for these loans.
If you have a stellar credit and haven’t defaulted on the existing loan, you can try looking for available refinancing options.
Owing to the volatile market, you might be able to access a much lower rate than you’re currently paying alongside more suitable terms.
An income-driven repayment (IDR) plan is another alternative that might also work out in your favor at this time.
If you’ve lost your job or there has been a noticeable dip in your monthly income, applying for an IDR-plan can help you gain access to a more affordable and suitable monthly payment.
A Word of Caution
Please remember that defaulting on your student loan isn’t a good idea as it can put an irreparable dent in your credit score.
The government has provided numerous relief measures and you must maximize their use however possible.
Connect with your lender immediately to understand the terms and requirements.