Student Loan Relief During Coronavirus (COVID-19)
*Updated on December 9, 2020
On August 8, 2020 The US President signed an executive order suspending student loan payments until the end of the year! This is a pretty big deal. During the height of the pandemic this was especially helpful to many of us since income was decreased and unemployment rose. If you follow me on social media (Instagram), you may have seen my most recent IG Live with Millenial Money Coach Jolene Stahn (She paid off $200K Student loans in 3 years) to speak on all things student loans. I briefly spoke about what I did with my money this year that would have gone towards student loans and how I plan to tackle it once repayment resumes. In a nutshell, I suggested taking advantage of this time of no payments and no accrued interest by putting the money you would have paid towards your student loans in a high yield savings account where your money would grow over the next several months. I also suggested putting money into a short term investment vehicle where more aggressive growth can be achieved. This way, once you’re required to start paying again you can put lump sums of money down and really put a dent in your loans.
Here are the details of the executive order:
Most of us are facing reduced or slashed income due to the coronavirus. Keeping up with bills may become increasingly challenging especially for those of us with federal student loans. Recent legislation via the Coronavirus Aid, Relief and Economic Security (CARES) Act passed by the federal government is offering support and some relief for borrowers.
1.Payments on Federal Student Loans are Suspended Through December 31, 2020 (was September 30, 2020)
Payments on most federal student loans have been halted until December 31, 2020. Interest does not accrue during this time, and not making payments will not hurt your credit. Each suspended payment will be reported to the credit bureaus “as if it were a regularly scheduled payment,” according to the text of the bill.
The following types of federal student loans qualify for payment suspension.
Direct Unsubsidized Loans
Direct Subsidized Loans
Direct PLUS Loans
Direct Consolidation Loans
Federal Family Education Loans (FFEL) held by the federal government
Federal Perkins loans
2. Some Private Student Loan Lenders Are Offering Relief
Unfortunately, the CARES Act doesn’t cover private student loans, including any federal student loans you refinanced through a private lender like Earnest, SoFi, Laurel Road, CommonBond, etc .
If you are not able to make payments on your private student loans, contact your lender as they may be willing to work with you by offering a forbearance, which will temporarily suspend your payments, prevent your loans from defaulting, and protect your credit.
Check out other student loan refinance options here.
3. Suspended Student Loan Payment Count Towards Forgiveness
Under the CARES Act, months in which payments on qualifying federal student loans are suspended will count toward loan forgiveness for borrowers who are pursuing it.
Federal student loan borrowers may be eligible for loan forgiveness through one of two programs:
Public Service Loan Forgiveness (PSLF) promises to erase (tax-free) the remaining balance on federal Direct loans after you make 120 qualifying monthly payments while working for the government or a qualifying nonprofit.
Income-driven repayment plans, of which there are four, cap monthly payments at 10%, 15%, or 20% of your discretionary income. They also stretch your repayment timeline from 10 years to 20 or 25 years. If you have a balance remaining after this extended repayment period, the rest is forgiven (but it’s taxed as income).
4. Student Loan Collection & Garnishing Tactics Have Been Suspended
If your federal student loans are in default, that is if you’re 270 days (or more) behind on your payments, the government can no longer garnish your wages, tax refund, Social Security checks, or other federal benefits in order to collect what you owe. Additionally, the Department of Education instructed private collection agencies to stop contacting borrowers by phone or mail.
5. Employers are Incentivized To Help Pay Student Loan Debt
The CARES Act allows employers to make tax-free payments of up to $5,250 in 2020 toward employees’ student loan payments. Employers can make these payments to employees or directly to their lenders.
PS: The above information is accurate as of August 12, 2020 (was April 3, 2020). As the COVID-19 Pandemic is a rapidly changing situation, it is important to stay current on updated government regulations. The federal government has an FAQ page for students, borrowers and parents that is continues to be updated.
Although the above solutions offer temporary relief from your student loan obligations, you will need to get back on track after December 31st. If you need help figuring out steps to tackle your student loan debt, I highly recommend Travis Hornsby of Student Loan Planner. Being a healthcare professional and having gone through specialty training, I have a lot of student debt. Travis has helped me figure out a strategy to get rid of student debt in a specified amount of time and is saving me thousands of dollars! Schedule a call with him to analyze your situation and and get clarity so you can devise a plan of action to get rid of student loan debt once and for all.
