While the federal government has cancelled interest and payments during the coronavirus outbreak, you’ll need to get in touch with your servicer to explore other options if you have private loans.
Federal student loans
With the passing of the second stimulus bill, the Emergency Coronavirus Relief Act, federal student loan borrowers will continue to have their payments automatically paused until February 2021 — among other benefits.
Previously, federal student loan borrowers had the option to suspend payments for two months through administrative forbearance. Now, it’s automatically in place for all federal student loans until September 30, 2021 — although you can still make payments toward your loan principal if you choose.
During this time, these skipped payments will count as regular payments toward any federal loan forgiveness or loan rehabilitation program. This helps prevent borrowers from getting behind or losing out on special programs during the coronavirus outbreak.
Beginning on March 13, 2020, the Department of Education (DoE) set the interest rate for federally held student loans to 0% for at least 60 days. This is technically still in place, but the Education Relief Act extends it. Rather than a 0% interest rate, interest simply won’t accrue on any federal student loans through September 30, 2021.
Suspension of involuntary collections
The Education Relief Act calls for the temporary suspension of all collection activity on federal student loans in default. This includes:
- Wage garnishment
- Tax refund reduction or garnishment
- Reduction or garnishment of federal benefit payments
- Any other collection activity
Which federal student loans qualify?
Only loans held by the Department of Education qualify. Your private loans will remain the same, and so will any loans issued by your state or school.
- Loans held by the federal government that are in repayment or forbearance — including:
- Direct Loans
- Federal Family Education Loans (FFELs)
- Perkins Loans
- Federal loans that haven’t entered repayment
- FFELs held by commercial lenders
- Perkins Loans held by schools
- Loans issued by state agencies and private lenders — like Sallie Mae
Other options for reducing your payments
If you need relief beyond waived interest charges, consider enrolling in an IDR plan to lower your monthly payments. You can also contact your loan servicer to discuss your situation and any additional programs that may help during a period of financial hardship. Just keep in mind that this will exclude you from administrative forbearance.
Employers can now offer tax-free contributions to your student loan debt
Under the CARES Act, employers can offer up to $5,250 in tax-free contributions toward your student loan debt through the end of 2020. This means we might see an increase in companies that offer student loan repayment benefits as a perk to entice workers.
Private student loans
Unfortunately, the government’s interest waiver doesn’t apply to private student loans borrowed from banks, credit unions or online lenders. That doesn’t mean there isn’t relief. You’ll just need to contact your lender to see if it’s offering any help or special programs during the coronavirus crisis.
Here’s what some private lenders are offering to borrowers affected by the pandemic:
- Natural Disaster/Declared Emergency Forbearance for up to three months
- Temporary hardship forbearance for up to two years
- Graduated repayments for loans issued on or after May 17, 2019
- $1,000 scholarships throughout April 2020
- Forbearance without counting toward the standard forbearance limit
- Disaster forbearance for three months
- May offer assistance to borrowers impacted by the COVID-19 pandemic on a case-by-case basis
- Skip a payment once every 12 months
- Six-month rate reduction
- Postpone payments for up to 90 days with no late fees
- May offer other programs during the coronavirus outbreak
- May offer assistance to borrowers affected by the COVID-19 pandemic
Keep in mind that interest will continue to accrue during forbearance for all private loans unless otherwise stated by your lender.
Don’t have federal student loans? Consider refinancing instead
Now that the Federal Reserve has cut its benchmark interest rate to zero, refinancing rates are fairly low. If you’ve improved your credit and still have a steady source of income — or a cosigner with excellent credit — it may be a good time to consider refinancing your private loans with a different lender. This can help lower your monthly payments and could potentially mean you pay less in interest overall.
But think carefully before refinancing federal loans. Even if a private lender offers lower rates, you’ll lose out on federal benefits — including the current waived interest program — that could save you money.
3 ways to increase your financial aid next semester
It may not affect your current student loan payments, but increasing your financial aid can help you borrow less during your next few semesters of college.
Request a refund
If you were living on campus or had a meal plan before the coronavirus health crisis, request a refund on your room and board costs from your college. Your refund should be prorated based on the date you had to move off campus. Contact your college’s financial aid office for more information — including when you can expect to receive your refund.
And if you paid for room and board with a student loan, you can return it to the lender. This will lower the total amount you borrowed, which will in turn reduce your future debt load. To get the process started, reach out to your lender or loan servicer.
Update your FAFSA
You can file corrections to your Free Application for Federal Student Aid (FAFSA) if your financial situation has changed dramatically because of the coronavirus.
For example, if your parent has lost their job, you should adjust the income portion of your FAFSA. This will change your Expected Family Contribution (EFC), which could mean you qualify for federal or state grants you were previously ineligible for.
Your college’s financial aid office may also be able to make changes to your FAFSA for you. Either way, file your corrections as soon as possible. The deadline to make adjustments for the 2019-20 school year is June 30, 2020.
Appeal your financial aid award
Like with the FAFSA, you may be able to increase your financial aid award by writing an appeal letter. Include information from your updated FAFSA and current financial situation to prove you’re facing hardship because of the coronavirus. While more funding isn’t guaranteed, you may qualify for additional scholarships or grants.
If you’re struggling to pay your bills during the coronavirus pandemic, you can take advantage of the Department of Education’s interest waiver and forbearance options for your federal student loans. Plus, many private student loan providers are offering deferment and forbearance for borrowers impacted by the outbreak. If not, consider refinancing your private student loans now that interest rates are at an all-time low.
Learn about more ways to manage your finances during the COVID-19 pandemic with our guide.