The Coronavirus pandemic has forced many businesses, including schools and universities, to operate differently than they used to. Some schools have closed, and others have turned to virtual learning options.
Many recent graduates have lost their jobs, had their hours cut, or accepted lower wages.
But what does this mean for your student loans?
With nearly 30 million Americans still collecting unemployment, those with student loans have questions on how to pay their bills.
Let’s take a look at what’s going on and what you can do to put yourself in a better position through all this craziness.
What’s Going On: The CARES Act
When Congress passed the CARES Act in March 2020, they included suspension of student loan payments and a temporary 0% interest on loans owned by the Department of Education. That means you don’t currently have to pay your federal student loans, and no interest will be accrued during this time. Your balance and what you owe will remain the same.
Private loans issued by banks were not addressed in the CARES Act. The approximately 9 million borrowers with private student loans will not get relief with their loan payments.
The CARES Act took effect in March and was scheduled to expire on September 30, 2020. After Congress failed to pass an additional stimulus package in August, President Trump signed an executive action that extends student loan relief efforts until December 31, 2020.
The more than 35 million people with federal student loans will not need to resume payments until January 2021. People who are able and would like to keep making payments can do so. The entire loan payment will go towards principal.
“Currently, many Americans remain unemployed due to the COVID-19 pandemic, and many more have accepted lower wages and reduced hours while states and localities continue to impose social distancing measures,” wrote the President. “It is therefore appropriate to extend this policy until such time that the economy has stabilized, schools have reopened, and the crisis brought on by the COVID-19 pandemic has subsided.”
As part of the CARES Act, if you have a Direct Loan and were on a qualifying repayment plan, and continue to work full-time for a qualified employer during the suspension period, you will receive credit towards Public Service Loan Forgiveness (PSLF) as though you made on-time monthly payments.
When the CARES Act expires on September 30, this will no longer be true. Suspended payments will not count towards PSLF.
Any auto-debit payments that you made will be suspended during the administrative forbearance. If you made a payment during this time, you can have that payment refunded to you.
While President Trump took an important step towards protecting those with student loan debt, his executive action will not provide relief for as long as is necessary for the economy to recover. Additional relief will be necessary after the December 31 deadline.
“We are heartened to see that the Trump administration has provided additional relief to some student loan borrowers by suspending student loan payments through December 31, however, more relief is needed,” says Nancy Conneely, director of policy at AccessLex Institute, a legal education nonprofit. “The pandemic will not end in December when this payment suspension ends, and we are hopeful that Congress and the administration can come together on a relief package that provides more sustained support for student loan borrowers as they continue to weather the economic fallout of the pandemic.”
Conneely continues, “We also urge the administration to count suspended payments toward Public Service Loan Forgiveness and income-driven repayment, as the CARES Act does. Counting suspended payments toward PSLF recognizes the vital work being done by our public servants, such as nurses, doctors and other essential workers, which is needed now more than ever. These Americans should not lose progress toward forgiveness due to circumstances outside of their control.”
A coalition of 29 attorneys general across the United States have sent a letter to the U.S. Senate seeking relief for all federal student loan borrowers. They are asking that borrowers of Perkins loans and FFEL loans (Federal Family Education Loan) also have their payments delayed and interest deferred. Although these loans are not owned by the federal government, they are guaranteed by them.
The attorneys general are also seeking extended relief and consideration of income-driven repayment plans for all borrowers once they resume payments.
What You Need To Do When It Comes To Your Student Loans
If you have federal student loans, you should not have to contact your lender to pause payments. If you had an automatic payment set up and would like to receive a refund on payments made during the pandemic, you can contact your specific lender to do so.
If you continue to make payments during this time, the entire balance of your payment will be put towards principal, since interest is currently at 0%.
It’s a good idea to follow up with the balances of your loans and confirm that they have not changed each month, as lenders have been known to make mistakes in the past.
If you’ve lost your job or taken a pay cut due to the pandemic, you have several options available to you as well. You can apply for an unemployment deferment or an economic hardship deferment.
You can also switch to an income-driven repayment plan, which bases your monthly payment on your income and family size. If you are currently unemployed, your payment will be $0 until you find new employment.
If you have Private student loans, you will not receive relief on payments through the CARES Act, or through President Trump’s executive actions.
However, many private lenders are offering their own forbearance and reduced payment options due to the pandemic. Each lender is handling the situation in their own way, so you will want to contact your lender to explore your options.
If you have Private student loans, now is a good time to consider refinancing. Interest rates are at an all-time low, and you could save a lot of money in interest in the coming years. A fixed-rate refinance would lock in these interest rates. Those with federal student loans should not be considering refinancing; there are too many options available for forbearance, 0% interest, and forgiveness programs.
What Should You Do With the Extra Money?
How you should handle the additional money each month will depend on your specific situation. If you need the money for essentials like food or rent, put it towards things you can’t live without.
But if you are able to use the money elsewhere, pay down high-interest debt you’ve incurred, like credit card debt.
If you aren’t carrying balances on your credit cards, starting or supplementing your emergency savings account is a good idea. While you will not earn much interest on the money, you will have it accessible to you if you need it in the future. It will still be some time until the economy recovers from the effects of the pandemic, and you may need access to the money in the near future.
Investing the money is also a wise use, especially in a retirement account or in the stock market. When the market rebounds, you are likely to see a great return on your investment.
Because interest rates on federal student loans are set at 0% right now, it’s also not a bad idea to continue with payments at this time if you can. You will see the full payment go towards your balance.
FAQs about Coronavirus & Student Loans
Q: Will student loan Covid forbearance be extended?
President Trump signed executive actions that pick up on October 1, where the CARES Act leaves off. Forbearance and 0% interest on federal student loans will continue through December 31, 2020. It is believed that additional assistance will be needed into 2021, but action has not been taken yet.
Q: Will there be student loan forgiveness for Covid healthcare workers?
Not specifically, no. While there was interest in a proposal for student loan forgiveness for frontline healthcare workers, these were not incorporated into relief bills or passed by Congress. However, healthcare workers may still qualify for forgiveness through Student Loan Forgiveness for Doctors, Student Loan Forgiveness for Nurses, or Public Service Loan Forgiveness.
Q: What can I do about my private student loans?
Private student loans are not eligible for the government’s forbearance. However, private lenders are offering a variety of hardship accommodations. Borrowers facing hardships should reach out to their lenders for forbearance and lowered payment options.
Q: What if I was behind on my student loans?
If a borrower is 31 days or more past-due on their student loans, their debt will be placed in the coronavirus forbearance and interest won’t accrue. This should occur automatically. The government is also stopping the garnishment of wages, Social Security checks and tax refunds from defaulted student loan borrowers at this time.
Q: What if I’m pursuing public service loan forgiveness?
Even if you don’t make payments until October, the time will still count toward the public service loan forgiveness program, in which the Department of Education forgives the student debt of people who work for the government or at a non-profit for 10 years. You must still be employed full-time by a qualifying employer for the missed payments to count towards your forgiveness. This accommodation will end on October 1.