The Coronavirus Aid relief and Economic Security (CARES) Act has many provisions.
Among the most important ones, is the delay of payments of all student loans given by the federal government. It also provides for a zero percent interest growth on said student loans until the 30th of September 2020.
This means that the student is exempt from paying anything until Sep 30, 2020. The said loans will not accrue any interest during this period.
This will enable 43 million students with 1.5 trillion in outstanding student loans to halt payment until September 30.
There are many benefits for students who depend on this program despite the obvious ones. There are conditions outlined in the act that are there to aid these students in addition to those already existing in the program.
How To Get Coronavirus Student Loan Relief?
There are 3 major changes outlined under the CARES Act, and through which students can access the relief program are :
- The federal government has stopped loan payments for students until a later date.
- It has also waived interest on those loans.
- Defaulters get 100% waivers on social security, tax refunds and wages that would otherwise be charged as costs for collecting the debt.
1. Forbearance is Automatic
The students are not obliged to automatically pay his/her loan from the 13th of March through to the 30th of September 2020. This includes student borrowers whose payment plans are automatic. A borrower making the payment during this period is eligible for a refund.
This includes any payments made either manually or automatically. While the system is still being put into place, students can get a direct refund for any payments made.
Students can request tax refunds, wages or benefits to their social security cut since March 13, 2020 for student loan debt collection.
2. No Interest For Borrowers In This Period
Another provision of the act is that it affected a 0% interest rate on all student loans for the 6 month period. The loans won’t gain any interest during this period. The government allows borrowers who still want to make periodic payments during this time to do so.
The full amount of that money goes towards the loan’s principles. It is advisable for a borrower who can make these payments to do so during this period as it could save them a lot of money in the future.
An example of this would be a student who has currently borrowed fifty thousand dollars in federal student loans, at 4% interest, would have gained $1000 in interest during this period. The federal forbearance will save the student $166 monthly payments.
The way it works is that the DE will communicate with the students in the fifteen-day time frame. It tells them that payments and interest are waived until the 30th of September.
3. No Debt Collection For Defaulters
Students who defaulted on their loan payments in the past have received relief. This has come in the form that no entity is allowed to seize their tax refunds, social security income or cut the money from their wages for the mentioned six-month period.
Students whose federal tax refund had been seized on or after the 13th of March and before September 30th would have that money returned to them.
The same would happen with wages garnished and sent to the ED, the department will refund that.
The same applies to private debt collection agencies. They have been told to neither make collection calls nor accept auto-debit payments made during this six-month period. The borrower can however reach out to them if they wish to continue with their payments.
CARES Act Exceptions
The new changes under the CARES Act don't cover cases as following:
- FFEL Program loans and Perkins Loans Exceptions – The two main benefits are forbearance and 0% interest rate applicable to most federal loans. This includes Direct Loans, FFEL Program loans and Federal Perkins loans. This program also applies to defaulted loans. It is worth noting however, that some FFEL Program loans and Perkins loans aren’t owned by the federal government. An example of these Perkins loans are owned and maintained by the borrower’s school. In the case of such loans, the borrower can consolidate them into a direct consolidation loan that would in turn be eligible for the program.
- Private loan Exceptions – The federal government, using the department of education doesn’t have any legal authority over private lending institutions. One thing that happens to pertain to this is that the student loan relief program only affects federal student loan borrowers. This is unless the private lender has communicated otherwise, such students are expected to make payments as usual. The good news is that, most lenders would be willing to help out affected borrowers by either suspending payments to a later date or through other relief measures – see below.
What a borrower can do if they don’t qualify, yet have taken FFEL loan or a Perkins loan?
Here the borrower has a couple of options.
These include consolidation of the loans to direct loaning so that they can qualify or to place those loans in a simple forbearance.
Both methods come with their own cons such as, after consolidation, the borrower loses any credit they’ve built up toward loan forgiveness. If you choose to place your loan in a normal forbearance, your loan will continue to accrue interest. There are other merits and demerits that you can find here.
The borrower should seek advice from their servicer as to whether any of these options would be best for their situation.
Students With Private Student Loans
There are some ways in which private student loan lenders are helping people affected by Coronavirus.
Also, since the conditions and plans changing rapidly, it's recommended to stay updated with the recent changes in your lender's website.
Here are the main benefits as of April 21:
SoFi has a policy in which student loan customers who have been impacted by the Coronavirus can apply for forbearance assistance. It has created a special Coronavirus section on its FAQs page to advise customers.
If a student is having trouble with making their student loan payments, they may apply a 60-day forbearance with an extension option if needed. To apply, you must log in to their account and complete the required form.
Anyone needing more information is advised to email firstname.lastname@example.org or live chat with a representative at sofi.com.
CommonBond has created a FAQ page to answer queries that their customers may have on the Coronavirus.
As a result of the federal government declaring the virus a national emergency, it offers its customers national disaster forbearance.
It works just like a normal forbearance but lasts until the end of the national disaster.
Customers can apply for national disaster forbearance here. CommonBond customers experience financial difficulties due to the ongoing pandemic can reach the institution for national forbearance.
Sallie Mae offers relief to customers on a case by case basis. They also give any information that the customer may need on their website.
They don’t specifically say what financial aid and how it works, but they’ve provided a way through which their customers to reach them.
The customers can do this via chat, through the Sallie Mae app or by calling 1-800-472-5543 if your account is current and 1-877-604-8834 if your account is past due. The customer should note though that, hold times might be longer than usual.
Discover is the first private lender offering customers a chance to skip two months payment interest-free. The prospective student must contact Discover Student Loans and ask for Discover’s Skip-A-Pay option.
This allows the borrower to defer payment for up to 2 months interest-free.
ELFI has researched and kept abreast of all the information on the Coronavirus pandemic.
Making sure all its customers and employees are informed about any relevant information. Their customer care center is open and serving the customers.
Navient currently offer up to 3 months of suspended pay without affecting the customer’s credit score, if you qualify for the program.
To qualify for the program, you must first call them and explain to them how Coronavirus has impacted you financially and your earning ability.
This financial institution has created a Coronavirus resource center.
Customers receive information about online and mobile banking resources, fraud prevention tips and FAQs related to the ongoing pandemic. Citizens Bank is prepared to help on a case by case basis depending on the needs of each student loan customer.
Ascent has put in place a window to cater for natural disasters and any state of emergency declared by the government.
This allows postponement of payments on ascent loans for up to three months in the case of a nationwide emergency. Just call your loan servicer and ask for it.
As with ELFI, PNC Bank has been keen to keep its customers up to date on information to do with the ongoing pandemic. The institution also provides a number that customers can call to get this information. The number is 1-888-762-2265.
This institution offers an extension of the grace period for up to an additional six months. It offers up to twelve months of hardship forbearance over the entirety of the loan period.
If needed forbearance is usually given in 3 or 6-month increments before reevaluation. It also offers deferments for members of the US armed forces and the national guard. Applies to those called to active duty for more than 30 days. It also offers a forbearance for victims of natural disasters as determined by FEMA
This financial institution allows borrowers to skip one payment every 12 months with prior approval. It also offers a forbearance option and a rate reduction program.
This program offers interest rate reduction for 6 months resulting in lower payments.
Wells Fargo has a few loan relief related solutions. These include; loan modification programs, that lower payments to short term payment relief programs.
They also offer a loan forbearance. Customers wishing to learn more about these should call 1-800-658-3567.
How To Deal With The New Situation as a Student?
Here we will look at a few ways in which students can cope financially during these unprecedented times.
Some of these include and are not limited to:
1. For Those Who Can, Keep Making Payments
It is advisable that if you are financially able, you should make the payments.
This is because federal student loans are set to 0% interest rate.
Any borrower who will decide to pay during this six month period will be reducing their principle amount during this time.
This means that they will save a significant amount of money on interest payments waived over the long run.
2. Eliminate High-Interest Debt, In Case You Have
The borrower can use this period to clear up any high-interest debts that may hurt them in the future. This may include credit cards or personal loans with high-interest rates accruing on them.
If you as a borrower have some savings or an emergency kitty set up, now may be the perfect time to dip into that kitty to pay off some of these loans.
However, you should keep in mind that we are in an unpredictable time, so you should be careful not to deplete these funds as you may need them for an actual emergency.
However, if you do not have an emergency kitty you may consider these methods:
- The Snowball Method – In this method, you the borrower, pays your smallest debt in terms of balance ignoring interest rates. It works like a pyramid, where the smallest debt is at the bottom of the pyramid and you clear up the debts from the bottom going up. From smallest to largest. By paying off the smaller easier debts first or you have a feel-good factor that allows you to pay the debts.
- Debt Avalanche – In this method, unlike the previous one, you prioritize your interest rates. This means that you pay off your debts from highest to lowest interest rate, regardless of the balance. Doing this allows you to lower the amount of each payment that applied to interest at a faster rate.
- Debt snowflake – This is a commonly known method. Here, you make one time payments whenever you can towards your debt. It makes sense since a snowflake is small but combining many of them, can make them big and strong
3. Job Loss? Consider an Income-Driven Repayment Plan
Allows for some government-sponsored students to put a cap on their payments to about ten percent to twenty percent of their monthly income. The remaining money may be waived after twenty to twenty-five years of precise and timely payments.
Your first and best approach in case you lose your job is finding an alternative plan of repayment. It is income driven within the 6 months window period allowed for deferment.
This is advisable because, if your income is $0 then your monthly payment under IDR plans will be $0 too. Monthly repayment is tied to your income. This gives you the flexibility to not deal with student loan payments while dealing with a loss in income.
Students in the federal loan program may qualify for a couple of options. This qualification usually depends on their income and the kinds of loans they have taken. Monthly payments are usually based on the size of the borrower’s family, adjusted gross income (AGI) and the loan balance that makes them eligible. The student can join the IDR Program by calling their lender or visiting Student Aid.Gov.
You can ask for an unemployment deferment of up to 36 months, but the borrower must re-certify their unemployment status every 6 months. This can prove very useful if you are still unemployed at the end of the six months since you’ve deferred payment.
4. Cut Expenses Where Possible
As obvious as it sounds, it is important to note that uncertain economic times are not the most ideal to be making extra purchases. You should concentrate on obtaining the essentials if you are worried that you or someone in your family may be unemployed or furloughed.
This means cutting out extra expenses such as subscription services like gym memberships.
Any and which way in which you can save a dollar or two has to be taken advantage of.