As the country grapples with an unprecedented pandemic that’s left millions of Americans unemployed, the U.S. Department of Education is giving most federal student loan borrowers a break from their monthly bills until at least October.
That reprieve started on March 13 and goes until Sept. 30. And during that time, no interest will accrue on the loans.
You probably have questions about how the freeze applies, or doesn’t, to you. After all, the federal student loan system is famously complicated, with some 14 ways to repay your debt, a web of forgiveness options and nine different private companies that service the government’s education loans.
I spoke to experts for some answers about how to best navigate these trying times with your student loans. (Still confused about something? Email me at Annie.Nova@nbcuni.com.)
Do I have to apply for the six-month break?
No. Unlike the Education Department’s usual forbearances and deferments for student loan borrowers, this six-month reprieve from payments will be automatic.
“Borrowers should not have to contact their loan servicer, companies like Nelnet, Navient and FedLoan Servicing, to pause payments on their federal student loans,” said Will Sealy, co-founder and CEO of Summer, which helps people navigate their loan repayment.
If you’ve set up automatic, recurring payments from your bank account with your lender, those will be suspended, too, Sealy said. Yet student loan servicers have until April 10 to end those routine charges, so you might want to turn them off before then if you plan on taking advantage of the reprieve, Sealy said.
How can I find out if my federal student loans qualify?
Many people have a variety of student loans, and some will qualify for the coronavirus forbearance, while others won’t, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors.
However, FFELs, or Federal Family Education Loans, and Perkins loans will only be eligible if they’re “federally held,” Sealy said. “This will be a very small percentage,” he said.
If there’s any confusion, borrowers can log in to Federal Student Aid to learn their loan type and lender. If a loan is “federally held,” Sealy said, the lender will be listed as the U.S. Department of Education.
You can also call your servicer or 1-800-4-FED-AID to find out if your loans qualify.
What can I do about my private student loans?
Private student loans, of course, aren’t eligible for the government’s forbearance.
“However, private lenders should also be more lenient at this time for borrowers experiencing big cuts to income,” Sealy said. “We recommend that these borrowers talk to their private loan servicer about temporary hardship accommodations.”
If you refinanced your federal student loans before the pandemic hit, you’re still out of luck, Griffin Rubin said.
But keep in mind, she said, “interest rates are favorable right now,” and “there is nothing stopping them from refinancing their loans again if it makes sense for them to qualify for a lower rate.”
What if I was behind on my student loans?
If a borrower is 31 days or more past-due on their student loans, their debt will be placed in the coronavirus forbearance and interest won’t accrue, Sealy said. The government is also stopping the garnishment of wages, Social Security checks and tax refunds from defaulted student loan borrowers amid the global health crisis.
“If your wages are still being garnished, contact your human resources department, as they were supposed to stop doing this,” Kantrowitz said.
If you’re worried about other offsets continuing, Kantrowitz said, you should call the Education Department’s Default Resolution Group at 1-800-621-3115.
What if I’m on an income-driven repayment plan?
On these plans, borrowers’ bills are capped at a portion of their income and some payments wind up being as little as $0. Any remaining debt is typically canceled after 20 years or 25 years.
If you’re enrolled in such a plan, there’s no down side to taking the six-month reprieve from your student loan bill, experts say.
In fact, Kantrowitz said, “continuing to make payments just reduces the amount that will eventually be forgiven.”
What if I’m pursuing public service loan forgiveness?
Even if you don’t make payments until October, the time will still count toward the public service loan forgiveness program, in which the Education Department forgives the student debt of people who work for the government or at a non-profit for 10 years.
Therefore, it’s only a good idea to take the break.
But borrowers should “keep good records of all their payments, including the non-payment payments through Sept. 30,” Kantrowitz said, so they can challenge their student loan servicer if it miscalculates their number of qualifying payments. (You need 120 of them to get your debt canceled.)
Keep in mind: Even if you’re not making payments, you still need to be working in a public service job for the time to count, Kantrowitz said.
What if my student loan servicer messes up?
That’s an understandable concern. Unfortunately, student loan servicers have been known to make errors and even give out false information.
To make sure your lender doesn’t charge you interest during this break from your payments, you should take a screen shot of your balance today, or, if possible, what it was on March 13, the date to which the break is supposed to be retroactive, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps student loan borrowers with free advice and dispute resolution.
“Given that servicers do not have the best track record for accurate record keeping, we are suggesting that borrowers save copies of their monthly loan statements in case there are unexpected discrepancies,” Sealy added.
If I take the break, will it hurt my credit?
“The new law instructs loan servicing companies and credit reporting agencies to report the next six months of suspended payments as if the borrower made a normal, on-time payment each month,” Sealy said.
In the meantime, what should I do with the money I normally use for my student loans?
What you do with this extra cash will depend, of course, on your unique circumstances. Many families need that money now for essentials like food and medicine.
But if you have a little more flexibility, you should try to pay down any high-interest debt you might have, such as on a credit card carrying a balance, Sealy said. Or you might consider stashing away the extra money in an emergency savings account, as we don’t yet know when life will return to some normalcy.
Investing the money, particularly in a retirement account, would also be a smart idea.
Yes, the market is down, but that means you’ll be buying stocks on the cheap and likely see a nice profit when the economy recovers.