Coronavirus Student Loan Relief: What You Need to KnowStudent Loans
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COVID-19, also known as the coronavirus, is one of the biggest public health issues many of us have seen in our lifetimes.
As a result of social distancing measures to slow the spread of the virus, we also see severe economic effects.
For example, at the end of March, 3.3 million Americans filed for unemployment benefits, which was the biggest jump in jobless claims in history.
Economists believe the COVID-19 pandemic could ultimately lead to more than 40 million Americans losing their jobs.
The numbers are startling, but the federal government is working to put measures in place to help people financially weather this storm.
Sweeping $2 trillion emergency relief legislation was passed on March 27, 2020 called the Coronavirus Aid, Relief and Economic Security Act (CARES ACT).
The CARES Act and Federal Student Loans
According to the CARES Act, most federal student loan borrowers will be able to pause their payments temporarily.
This includes putting a pause on both the principal and interest for loans that are federally held.
The payment pause is set to last through September 30.
During these six months, no interest will accrue on those federally held loans so that if you don’t make payments during this time, your balance won’t get larger.
Under the CARES Act, there is a suspension of involuntary collections.
Involuntary collections include a reduction in your federal benefits or tax refund if you’re in default, as well as wage garnishment.
The U.S. Department of Education also said it plans to refund more than 830,000 borrowers around $1.8 billion in offsets.
Those offsets are because the Department says they were processing payments when the pandemic was officially declared a national emergency on March 13.
How Can You Access the Temporary Pause?
The CARES Act outlines that student loan payments are automatically paused, as are involuntary collections.
You don’t have to contact anyone or do anything in particular to pause your payments.
Before the CARES Act was passed, if you held federal student loans, you were advised to apply for an administrative forbearance of two months, but now the passage of the act replaces that.
This also brings to light the potential for scammers to take advantage of this situation.
If you are asked to pay a fee or fill out paperwork to pause your student loans or use the interest waiver, it’s not legitimate.
You should report any situation like this to the Federal Trade Commission.
Do All Federal Student Loans Qualify for These Protections?
Under the legislation, most federal student loan borrowers will benefit from the pause on both payments and collections, but not all.
If you have a Perkins Loan or a Federal Family Education Loan (FFEL), you are not eligible.
For anyone who isn’t sure of the specific type of student loan they have, you can contact your servicer or log in to the NSLDS, that’s the National Student Loan Data System, just Google NSLDS, National Student Loan Data System, and you’ll find it.
You should also be able to log into your servicer account and see if a benefit was applied to your account.
For borrowers whose federal loans were excluded, you may still be able to get help if you contact your loan servicer and apply for forbearance or income-driven repayment.
The CARES Act and Loan Forgiveness
With the CARES Act guidelines, if you were working toward a loan forgiveness or rehabilitation program, each month that’s part of the pause will still count toward that.
For example, if you are working toward Public Service Loan Forgiveness, these months count when you aren’t making payments due to the CARES Act.
What About Private Student Loans?
One of the most important things to realize is that private student loans are not covered under the CARES Act.
If you have private student loans, you should contact the loan servicer and see if they are offering options, because many are.
Should You Keep Paying Your Loans If You Can?
It may be tempting, even if you are still working during this time, to take advantage of the pause on student loan payments, but it may not be the best financial decision. If you are still working and you can, it’s best to continue paying because you have the opportunity to pay the loan off faster when it’s not accruing interest.
If you can make payments during this time, they’re going to be applied to your principal, so you’re going to chip away at your balance faster each time you make a payment. You’ll ultimately pay less interest over the long-term.
What Can You Do About Your Private Loans During Covid-19?
Since the CARES Act doesn’t apply to privately held student loans, it’s up to your servicer as to how they help you. If you lose your job, contact your loan servicer right away. The faster and more proactive you are, the better.
The following are some ways major lenders and servicers say they’re dealing with the crisis.
Earnest says with their student loans, they are offering up to three months of postponed payments. This is available through a disaster forbearance. If you use this program from Earnest, your interest still accrues during the forbearance period, but it’s not capitalized. That means the interest accrued during forbearance won’t be added to your unpaid principal.
Earnest asks borrowers to fill out a request form for disaster forbearance.
Some of the information you’ll need to provide includes details of how you’re affected by Covid-19. Examples include losing your job or reduced hours at work. You’ll need to include information about your industry, and provide an estimate of when you think you’ll be able to return to making normal payments.
If you refinanced a federal loan with Laurel Road, forbearance for up to 12 months over the life of a loan might be available, but interest continues to accrue. According to Laurel Road, you might also be able to apply for an extension if they are your loan servicer.
Laurel Road asks for borrowers to contact them at 1-877-292-6845 to learn more about the options available as part of their Covid-19 response.
Navient says that for borrowers whose loans don’t qualify for the protections through the CARES Act, they are offering up to three months of disaster forbearance, but you have to request it. This would mean that if Navient is your loan servicer, you should contact them, and you may get a postponement of your payments for up to three months.
If you’re eligible during these three months the interest accrues but isn’t added to the principal.
Navient also encourages impacted borrowers to consider other programs they offer such as the Rate Reduction Program, which is a temporary reduction in interest rates that in turn, reduces the amount you pay monthly or an interest-only repayment plan. Navient also offers an extended repayment option.
If your loans are serviced by Nelnet, and you have an account that starts with a D or a J, your loans don’t qualify for CARES Act provisions. What you can do is take advantage of potential other options, including their Economic Hardship program or their Unemployment Deferment. With Unemployment Deferment you might be eligible to get an interest subsidy.
To see what your options are, Nelnet encourages borrowers to log into their account and select Payments. They can then choose Repayment Options.
Another option is to contact Nelnet and request a 90-day coronavirus forbearance, for temporary suspension of payments.
Citizens Bank says they are offering payment assistance for up to 90 days on their consumer loans, including student loans. Also available on student loans from Citizens are late fee waivers.
CommonBond says that since Covid-19 is declared a national disaster, it qualifies borrowers for disaster forbearance. According to CommonBond, this is similar to regular forbearance, but the options for help are available through the end of the declaration of the national emergency.
When CommonBond customers are in a natural disaster and use that forbearance, it doesn’t count toward standard forbearance. Interest still accrues, but there aren’t fees.
CommonBond says they are also waiving late fees for members throughout the declaration of the national emergency.
For Discover student loans, one option available is to temporarily reduce the interest rate for up to 12 months. While this doesn’t eliminate your monthly payment, it does lower it. You might also be eligible for forbearance for up to 12 months for the term of your loan.
You can’t receive the 12 months consecutively, however. Discover may also make a reduced payment available, and in this case if you’re eligible you would have a minimum monthly payment that’s greater than or equal to the monthly interest you pay for up to six months.
If you have loans from College Ave, the company is offering a Covid-19 Disaster Forbearance program. Under their program, they are temporarily suspending payments on College Ave loans for three months consecutively.
College Ave asks that borrowers email them, and to speed-up the processing of their request that they include their 12-digit loan ID in their subject line. According to College Ave, requests are typically completed within five days and you get an email when it’s complete.
During this time, interest continues to accrue, but it’s not capitalized at the end of the Disaster Forbearance program.
Conclusion—Dealing with Student Loans During Coronavirus
The entire country and world are in a difficult and scary time right now, but if you have student loans, options are available to you. Federal student loan protections during this time are automatic, but even if you have private loans many companies are working with customers to help them with flexible repayment options in a time of economic uncertainty.
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.