Student Loan Relief During COVID-19
Student Loan Relief During COVID-19
By Mack Bekeza, CFP®
With COVID-19 wreaking havoc in more ways we can imagine, one of the biggest fears some people have is their student loans. Fortunately, if you have student loans directly held with the Federal Government (commonly referred to as a Federal Direct Loan), The CARES Act has enacted relief options for Student Loans! During the next six months, your loan will be under “Administrative Forbearance.”
What does this mean?? Don’t worry; Money Mack has you covered!
Suspended Loan Payments
From March 13 to September 30, 2020, all federal student loan payments are suspended and interest will not accrue over this time frame. You heard me right; you do not have to make payments for six months, nor will you have to worry about interest building up during this period. However, you can make payments during this time.
I am looking at you, Debt Avalanchers and Snowballers!
And just so you know, THERE IS NO ACTION REQUIRED FROM YOU TO SUSPEND YOUR PAYMENTS. So if someone calls you and attempts to collect your info or a fee to suspend your loan payments, tell them to buzz off, it’s likely a scam.
Safety Net for Borrowers in Default
But what if I am in Default? Any relief for me?
Yes, there is! The Department of Education has suspended the collection process for defaulted loans, which included wage garnishments, offsetting of tax refunds, and even the offsetting of Social Security benefits. Just like the suspension of Loan payments, this will last from March 13 to September 30.
However, once September 30 passes, you will still need to have an action plan to handle your delinquent loans!
Refunds for payments already made during the forbearance period are available
What if I made payments after March 13? Can I ask for a refund?
Guess what, you sure can! Just contact your loan servicer and request a refund of any payments you made after March 13.
What if I am participating in the Public Service Loan Forgiveness Program (PSLF) or the Income-Driven Repayment Plan (IDR)? What happens to me?
Great news, not only will these payments be suspended, those suspended payments will still count towards forgiveness under both programs. Essentially, you just won yourself a six-month boost towards taking a hatchet towards your student loan debt.
What if I do not have a Federal Direct Loan, can I still qualify for these benefits?
If your loan is not held directly by the Department of Education and is held by a commercial institution, like some loans under the Perkins and Federal Family Education Loan (FFEL) Programs, you may not be eligible for these perks. However, please contact your loan servicer to see what kind of relief they have to offer.
What to do after reading this?
- Verify with your lender if these options are available to you, not all loans fall under the Administrative Forbearance.
- Commercially held student loans can potentially be rolled over to a Federal Direct Loan and will be eligible for the forbearance. If this makes sense for you to do this, ask your lender if you can roll your loan(s) over.
- Make sure you have your monthly budget ready to see where you can allocate funds towards paying down your debt, support you and your family.
- If you have not been negatively affected by COVID-19, consider increasing your rainy-day fund and or your investment contributions!
- Keep an eye for updates on the forbearance; legislation is currently in the works to assist more borrowers, particularly those with commercially held loans!
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