What You and Yours Need to Know About Student Loan Repayments During the Pandemic

Millions of student loan borrowers across the country are facing difficulty making payments on their loans as the Coronavirus pandemic continues. You personally may not be encountering this problem, but maybe your children or grandchildren are. Alternatively, you may have cosigned on your children or grandchildren’s student loans and as a cosigner you will be liable should your child or grandchild cease making payments. The CARES Act was signed into law in March of 2020 and provided some temporary relief but is scheduled to end on September 30, 2020. 

The Wall Street Journal recently published the following commonly asked questions and answers to help people navigate these turbulent times.

What is the temporary suspension on student loan repayments?

If you have federal student loans that are owned by the Education Department, you are eligible for the six-month payment suspension and interest freeze. This includes Stafford, Grad PLUS, and Parent Plus loans. It applies to borrowers using income-driven repayment plans and loan-forgiveness programs. Some federal loans issued prior to 2011 are owned by entities aside from the Education Department and don’t qualify. Contact your loan servicer if you are unsure whether your loans qualify. 

What must I do to get my repayments suspended?

Nothing. Your loan servicer is required to automatically suspend the payments due between March 13 and Sept. 30 and change the interest rate on your account to zero.

I made a payment after March 13. Can I get the money back? 

While the suspension of monthly payments is retroactive to March 13, loan servicers were given until April 10 to implement the change. As a result, some borrowers may have had automated payments taken from their accounts after March 13. In that situation, ask your loan servicer for a refund if you want one.

Can I suspend private loans?  

Many private lenders and servicers are offering some flexibility to borrowers who ask to suspend their payments. Unlike with federal loans, though, the interest will continue to accrue, and the lender may deny your request. Call your lender to find out whether they offer any flexibility.

I am in a loan forgiveness program. Will my payments be suspended? 

Yes. Even better, the paused payments will count toward your loan forgiveness. If, for example, you are enrolled in the federal government’s Public Service Loan Forgiveness program, the six suspended payments can be applied to the 120 you must make before the balance can be forgiven.

There are other avenues to explore to minimize or even eliminate the college debt burden. These options can be taken into consideration regardless of whether or not we are in a pandemic. If a borrower finds themselves unable to make their current federal loan repayments, they can opt to choose a different payment method. In addition to the standard 10-year term option, there are four other repayment options, as follows:

  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Pay As You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment

These options are income-driven options whereby the monthly payment is determined by the borrower’s income and family size. These payment plans are built to allow the borrower to pay what they can afford versus what they owe. For parents who borrow through the Parent PLUS Loan program, the only extended repayment method available is the income-contingent method.

To take it a step further, there are programs available that will also eliminate federal loans entirely. The Public Service Loan Forgiveness program is the largest federal loan discharge program. It is designed to encourage people to go into public service jobs. After a borrower has made 120 qualifying payments, this program allows for the remaining federal student loan balance to be forgiven. This is contingent on the borrower going into one of the following public service jobs:

  • Public education
  • Public health
  • Peace Corps
  • Churches
  • Children’s rights organizations
  • Public libraries
  • Military and law enforcement
  • Public interest law

Millions with student loan debt are facing the increased difficulty of making their payments in the midst of this pandemic. Repayment plans and programs exist to help ease this burden. If you are not facing this problem personally, maybe your children or grandchildren are; or if you cosigned on a loan, you could be responsible for these payments yourself. Contact your student loan provider to coordinate the best option for you.

As always, if you have questions or concerns specific to your situation, please do not hesitate to contact your advisor.

Sources: Wall Street Journal, WealthManagement.com