In the last couple of months, we’ve heard much about the effect of COVID-19 on the economy and the steps the federal government has taken to try to alleviate some of the financial impacts on Americans. The CARES Act, which included a $1,200 payment to almost every American, and the Paycheck Protection Program were the most recognized elements of this legislation. Expanded unemployment benefits were also put in place to help ease the burden. But what about how the pandemic has affected student loans and the kind of relief that is available? There are approximately 45 million borrowers who collectively owe nearly $1.6 trillion in student loan debt in the U.S., so the topic is significant to an enormous number of people.
The COVID-19 pandemic and subsequent stay-at-home orders have had immense impacts on the global economy. Many people have lost their jobs or are surviving on reduced earnings. If you’re one of the millions of Americans with student loans, this can make handling those loans even more challenging than usual. If you are struggling with payments, you may find some hope with several debt relief options available during this crisis. Let’s explore...
Borrowers can suspend payments on their student loans during the coronavirus pandemic. Normally, this deferment would be reported negatively to credit bureaus. However, the CARES Act requires that suspended payments between April and September 2020 be reported as on-time. In other words, there should be no negative credit reporting. Additionally, certain federal loans are also accruing 0% interest during this time.
Borrowers have several options for suspending their payments. However, the situation is complicated, and not all loans qualify for every form of forgiveness. Before making any decisions about remittances, make sure to check with the owners of your loans.
Many private loan servicers are also offering some relief. However, this is not as consistent and may not be as favorable. Speak to the lender before attempting to suspend payments on private student loans.
Additionally, check your credit report because some lenders have mistakenly reported suspended payments as deferred, resulting in damaged credit. This can be fixed at no cost, but you should contact the lender immediately if it happens.
The CARES Act
The CARES Act has provided a significant amount of relief for student loan borrowers. However, the bill was written quickly in response to the coronavirus emergency. There has been some confusion about the nature of debt relief. There have also been some subsequent clarifications, especially from the Department of Education. Here are a few things you need to know:
Federal Loan Payments Are Suspended
As mentioned above, federal loan payments have been placed into an administrative forbearance starting March 13 through September 30, 2020. However, many services were not able to begin this suspension until April. Borrowers can request a refund on any payments to qualifying loans made after the CARES Act took effect. These are the eligible loan types:
- Direct Subsidized and Unsubsidized Loans
- Direct Consolidation Loans
- Direct PLUS Loans
- Federal Perkins Loans (Not owned by the school)
- Federal Family Education Loans
Keep in mind that some of your loans may be owned by the school or other entities. Only those owned by the federal government have automatic payment suspension. You can check whether loans qualify by visiting StudentAid.gov/login or calling 1-800-4-FED-AID. The balances also accrue no interest during this time, even if you continue to make payments.
You Can Keep Paying
If you are able to, consider continuing to pay your student loans. The 0% interest arrangement means that you could make significant headway in paying off your loans. If you are fortunate enough to be relatively unaffected financially by the coronavirus situation, this could be an opportunity for you. However, if you need to save the money, strongly consider suspending payments.
Collections Are Suspended
Many collection tactics are also suspended if you are in default (270 days or more behind on payments). This could give you some breathing room for a while on your student loan situation.
Some of the suspended tactics include garnishing wages, withholding tax returns, and withholding government benefits. You can learn more from the Department of Education’s loan information page.
Other Debt Relief Packages
Since the CARES Act was signed into law, there have been rumors about possible additional coronavirus relief packages. Congress continues to negotiate possible debt relief and other initiatives. However, the most noteworthy, the HEROES Act, was voted down in the Senate. Negotiations between conservative and progressive voices in Congress have been slow.
In short, although there may be additional relief for your student loans on the way, you should probably not count on anything soon. If you need to, take advantage of the CARES Act and other relief options.
Get Help With Debt
If you are struggling with credit card, medical or unsecured personal loans, due to the coronavirus pandemic or any other reason, there are options available. At Financial Rescue, we help people with tax and debt relief services. Contact us today, we are happy to discuss our services and solutions with you.