There are over 44.5 million people who owe a total of $1.5 trillion in student loan debt. Most of them are over age 30 and many are homeowners. During normal conditions, paying these loans back can be challenging; during a pandemic where many people have lost jobs or have reduced hours, it can be impossible. For this reason, the recently signed $2.2 trillion Coronavirus Aid Relief and Economic Security(CARES) Act includes student loan interest and payment suspension until September 30,2020.
This act provides a pressure relief valve for millions of Americans making monthly student loan payments, who may now find their economic situation uncertain. Understanding the details of the law will help you assess your options during this Coronavirus-related economic crisis.
What student loans qualify?
Qualifying loans: Student loans owned by the U.S. Department of Education including Direct Stafford Loans, Direct Plus Loans, Federal Perkins Loans, and Federal Family Education Loans (FFEL).
What loans don’t qualify: FFEL and Perkins loans that are privately owned or owned by the college you attended. Also, private student loans or federal loans refinanced with a private company or bank do not qualify as they are no longer held by the U.S. Department of Education.
Benefit 1: 0% Interest Rate
Interest on eligible student loans will be deferred through September 30, 2020. No interest will accrue during this period.
Benefit 2: Payment Suspension
Under the Bill, eligible student loans will automatically be suspended until September 30, 2020. The law requires the borrowers to be notified by April 11 if their payments will be suspended and again notified beginning August 1, 2020 to inform them when payments are due. During this suspension period, borrowers have the option to continue making payments that will go toward principal only.
Loan servicers are putting updates on their homepages (examples Nelnet, Navient, Great Lakes) as information evolves. We recommend checking your loan servicer’s website periodically for updates, as phone lines will be very busy during this time.
Questions you may have
What will this do for student loan forgiveness? The CARES Act treats suspended payments as payments made in full for people who have loan forgiveness or loan rehabilitation. This means the amount forgiven will be larger, as you will get credit for six months of payments you don’t have to make.
Should I continue to repay student loans if I am able? This is a personal choice. If you continue to pay your student loans, the payment will apply to principle only. If you have other debt with higher interest rates than your normal student loan interest rate, it makes economic sense to suspend payments and apply them to that debt. If you have no other debt or low-interest debt and your finances are strong, you may want to continue paying your loans. When interest starts to accrue again, your lower loan amount will translate to less interest over the remaining term of the loan.
What will happen to the payments that I did not make?
Clarification is pending, but one of three options will occur:
- A balloon payment where your last payment before retiring the debt includes the 6 missed payments.
- Your payment will be adjusted after the 6 month payment suspension to retire the debt over the remaining term.
- Your total term will be lengthened by 6 months. Check with your servicer as more details emerge.
If you are eligible for an interest-free loan during this time, do not refinance your student loans. If you refinance, you would be turning your loan owned by the Department of Education to a loan owned by a private company. Private companies are not required to offer interest or payment relief right now, so you would be giving up the opportunity to suspend payments at 0% interest for the next 6 months.
Own Up exists to empower homeowners with personalized data and unbiased advice so they can make better financial decisions. Many homeowners have student loans. Individual financial situations are a complex web made all the more complicated when economic uncertainty strikes. We understand this and we're here to answer questions and provide guidance. Email us at firstname.lastname@example.org.