Coronavirus and Student Loans: What Are My Relief Options?
Introduction
The coronavirus is hitting the economy hard, leaving many out of work and struggling to cope with bills. The 44 million Americans who have student loan debt have been left wondering how they can keep on top of their payments and just exactly what kind of support they can expect from the government.
We delve into the key features of the government's coronavirus relief package as well as the options being offered by private lenders to help put your minds at ease.
Federal Student Loan Relief
The good news for those with federal loans is that the recent $2 trillion stimulus package recently passed by
Congress contains a number of provisions to help borrowers through these rough times. The key points are:
1. All federal loan repayments and interest have been suspended
You heard that correctly. If you have a federal student loan all payments and interest are being suspended, effective from 13th March until 30th September. If you made a payment after March 13th you may also be entitled to a refund. Contact your loan provider to find out more.
2. These payments will be automatically suspended
You don’t need to apply for the suspension either. Your federal loan provider will automatically suspend payments for you.
3. You can still make repayments if you’d like though
If you’re lucky enough to be in a stable financial position during this crisis then you’ll be allowed to continue making payments as normal. It may actually be beneficial for you to do this, or even make overpayments, given the fact that all of the payments you do make will be interest-free.
For example, if you have an outstanding loan value of $30,000 dollars at an interest rate of 5%, you could be saving $125 per month in interest charges by continuing to pay.
However, if you’re close to meeting the Public Service Loan Forgiveness criteria we’d recommend not making overpayments. This program wipes out your outstanding student loan debt once you’ve made 120 consecutive payments, so if you’re close to this target you’d be better off keeping up your normal payments.
In addition, if you choose to suspend payments, this will still count towards your consecutive loan forgiveness months.
4. Student debt collection is also suspended until 30th September
This means that the government will not be deducting any payments from your salary or social security payments.
The government has also instructed private debt collection agencies not to chase up those borrowers who have defaulted on payments.
This could provide the chance for those who have defaulted to get back on track with their payments and get themselves out of default state.
5. Not all federal loans are eligible for this relief
Bear in mind that certain types of federal loans have not been included in the relief package. These include some Federal Family Education Loans (FFEL) and some Perkins loans.
Private Loans
Unfortunately, if you have a student loan with a private lender you won’t be eligible for any of the relief offered to those with federal loans.
This puts an estimated 8 million Americans in the position of potentially having to make repayments during this crisis.
These are loans that are known as federally guaranteed, meaning they are owned by private institutions but the government is responsible for the payments if a borrower defaults.
If you took out a loan prior to 2010 there’s a very good chance you’ll have one of these types of loans.
However, it can be a little confusing, so it's always worth checking with your provider first to confirm if your loan is private or not.
You have a few different options open to you if you have a private loan. These include the following:
1. Consolidate a federal family loan into a federal loan
If you consolidate your FFEL loan into a direct federal loan you’ll be able to access the relief package benefits.
However, if you were working towards the required 120 months to qualify for loan forgiveness this will reset to zero if you consolidate.
In addition, it could take time to switch, sometimes up to 60 days, but loan providers may try to expedite the switch under the current crisis.
2. Employers are being incentivized to pay off loans
The relief package allows employers to make tax-deductable payments towards their employee’s student loans.
These are tax-free up to $5,250 and the company doesn’t have to raise the employee's gross taxable salary.
Check with your employer to see if this is something they can offer you.
3. Request a voluntary forbearance
A voluntary forbearance is an option available to anyone with a private loan. This is a temporary postponement of payments at the borrower's request but at the discretion of the loan provider. Each borrower usually has a forbearance allowance of up to 36 months.
However, interest does still accrue under forbearance and will be capitalized and added to your loan principal meaning your monthly payments will go up at the end of the forbearance period.
4. Request an unemployment deferment
If you’ve become unemployed as a result of coronavirus and have a private loan, your best option may be an unemployment deferment. This option also kicks in if you’re on reduced hours and you can apply for unemployment deferment if you’re working less than 30 hours per week.
If your loan is subsidized you’ll accrue no interest during your forbearance period but you’ll only be able to take deferments in six-month increments.
What Relief are Private Lenders Providing?
As well as considering some of the options above, each private lender is offering its own solutions to help borrowers through this crisis. Some of these include:
Citizens bank
- No late fees on April and May missed payments
- Emergency COVID-19 forbearance period of three months. Interest will still accrue but not be capitalized
- This will not take up any of your forbearance allowance
Discover
- Discover has opened a helpline to specifically support those struggling to repay student loans. You can contact them on 1-800-STUDENT to discuss options
Sallie Mae
- Sallie Mae is offering a number of postponement options. It recommends you contact the team directly via its website
Sofi
- A 60-day forbearance plan with the option to extend if you continue to suffer hardship. However, interest will still accrue
- Student loan refinancing options available
Commonbond
- Option to apply for a natural disaster forbearance. Interest will still accrue but you’ll pay no additional fees and it won’t count towards your forbearance allowance
Navient
- Three month forbearance period offered on all private loans. However, interest will still accrue during this period
- Income-driven repayment option. If you’ve taken a cut in income due to coronavirus you may be able to reduce your loan payments based on your new income
The Bottom Line
Our advice is to not panic. Whether you have a federal or private student loan, there are a lot of options available to you.
If you’re not able to afford your repayments during this crisis there will almost certainly be a way for you to suspend your payments or work out a revised payment plan with your lender.
Remember, though, your forbearance options won’t always be automatic if you have a private loan. Get in touch with your lender as soon as possible to discuss the options you have.
