On This Break On Student Loans: Maybe You Should Keep Paying Them Anyway
Payments are currently on hold, without interest, for federal student loan borrowers until December 31. Originally, a six-month suspension was announced in mid-March as part of a measure included in the coronavirus relief program. It was extended until the end of the year by decree. This policy applies only to federal loans, not to private student loans.
Borrowers can still make payments to reduce their debt during this period of suspended payments, called forbearance. Contact your repairer if you have any further questions.
Make no mistake: this is a break from payments, not forgiveness. Your debt will be waiting for you when the repayment begins at the end of the forbearance, unless the policy changes.
Also see: What did people do with their $ 1,200 stimulus checks? Finally an answer
And politics may well change. The measures were taken as part of the federal stimulus bill in response to the economic fallout from the spread of the coronavirus and COVID-19, the disease it causes. The abstention was then extended by President Donald Trump in early August. Neither the epidemic nor its economic impact is showing signs of slowing down, and some lawmakers have proposed more dramatic measures.
“I think there are going to be additional waves of relief, depending on how this pandemic progresses,” said Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.
In the meantime, here’s how to decide what to do next.
If you want to suspend payments
You don’t have to do anything to get a abstention to stop student loan payments. Interest will not continue to accumulate, as it normally would.
Forbearance could give you leeway to deal with other financial issues.
If you are unemployed or working reduced hours, an abstention can free up money to pay rent and utilities or grocery bills. Even if your salary is not affected, a forbearance could help you divert money to building an emergency fund or help you pay off other, more urgent debt.
Usually forbearance is given at the discretion of the Servicer and interest will continue to grow. In this case, the Department of Education instructed all duty officers to automatically place all loans into interest-free forbearance.
If you’re behind on your student loan payments (or late)
Payments are automatically suspended for all borrowers, including those who are more than 31 days late by March 13 and those who become more than 31 days late in the next few days. This means that the loans are put into forbearance and will not default.
Defaulting on federal loans occurs when a payment is 270 days past due, sending your loan to collections and exposing you to damaged credit, foreclosed wages, and foreclosed tax refunds.
Read also : COVID-19 forced working mothers to take time off work – rather than fathers
For borrowers in loan rehabilitation, each month of the initial abstention period from March 13 to September 30 would also be taken into account for the rehabilitation. It is not known if this will be the case for the extended abstention.
For those with past due federal student loans, all collection activities are suspended until September 30. You can get a refund for any forced student loan payments made since March 13. If your tax refund was entered before March 13, it will not be refunded. .
If your loans are already forborne, any interest already accrued will still be added to your loan principal when your repayment begins, but during the six-month waiver, no new interest will be calculated.
If you are looking for a civil service loan discount
The initial six-month automatic forbearance will not reverse your progress towards the Public Service Loan Forgiveness, or PSLF. As long as you are still working with an eligible employer, those six months from March to September will count towards the PSLF.
It is not clear whether non-payments during the extended abstention until the end of the year will also count for the PSLF.
Making payments during the six month forbearance period will not advance you on the payments. You are in the same boat whether you pay or not.
Under normal circumstances, only full payments count. You also won’t lose credit for payments you’ve already made. Expect to make payments for October, November, and December if you want those months to count.
If you want to continue making payments
Borrowers might want to continue making payments on federal loans if they want to pay off their debt faster.
The stimulus bill stipulates that borrowers will have the option of continuing to pay the principal, but otherwise all loans will be placed on hold.
If you continue to make payments, you will not pay any new interest on your loans during the forbearance period. That 0% interest rate will save you money overall, even if your payment won’t be lower.
The full amount of your payment will be applied to your loan principal balance once all interest accrued before March 13 has been paid.
Whether or not to make a payment during this time will depend on your initial repayment strategy:
Those who stick to a standard repayment schedule (usually 10 years) might consider making payments. You probably won’t have a lot of unpaid interest, and additional payments can help reduce your principal during the break.
Borrowers enrolled in, or planning to do, an income-based repayment shouldn’t bother making payments now if the final plan is to pay until the loans are canceled – typically 20 or 25 years. If you want to pay off your loans sooner, paying now could help reduce the total interest you owe on top of your principal.
Borrowers requesting a utility loan forgiveness should consider making payments after September 30 if they want those months to count towards the forgiveness.
Contact your loan manager with any questions regarding the continuation or resumption of payments during the forbearance period.
If your income has changed
If you are seeing a change in your income and still want to maintain your payments, the best way to reduce your payment to something more affordable is to request an income-based refund. You will receive a new payment based on your family size and a percentage of your discretionary income, and it will be in effect even after the stimulus relief expires. You can apply online at studentaid.gov.
If you are already enrolled in an income-oriented plan, be sure to recertify your income each year or if it has changed due to the economic downturn.
If you have FFEL loans
If you have Federal Family Education Loans (FFELs), you are eligible to receive interest-free forbearance only if the government owns the loans. Most FFEL borrowers will not be – most of the loans in the now defunct program are commercially held.
You can find out who owns your loans by logging into studentaid.gov using your FSA ID.
The only way to get forbearance for FFEL commercially held loans is to consolidate your debt into a new direct loan. But there are downsides to consolidation:
Your repayment term will be extended.
Your interest rate will increase slightly.
Any unpaid interest will be capitalized and added to the total amount you owe.
Six months of interest-free payments may not be worth these additional costs in the long run.
Additionally, if you are already making payments on a income-based reimbursement (IBR), these previous payments will no longer be taken into account for the discount. You will have to start all over.
Consolidation may make sense if you have FFEL loans and want to qualify for the civil service loan remission. Otherwise, stick to your current loans.
If you have experienced a change in income, you can enroll in the IBR or recertify earlier, if you have already subscribed to this plan. IBR will always take your spouse’s income into account. Your loans are also eligible postponement of unemployment, which can make sense if you’ve lost your job but expect to start working again soon.
How to work with your repairman
If you want to restart payments during automatic forbearance, contact your student loan manager – the private company handles the payment of your federal loans. But you don’t have to do anything to get the forbearance or the 0% interest rate.
Mayotte encourages borrowers to be patient with their services.
“These are unprecedented moments, and I can assure you that the repairers did not have much notice,” explains Mayotte.
To find out which loan service is yours, log on to Studentaid.gov with your FSA ID.
You can get in touch with any loan service contact center by calling 1-800-4-FED-AID.
For more information visit studentaid.gov/coronavirus for details to come.