Paying off Student Debt During COVID-19

Even before the COVID-19 outbreak, Americans were struggling to pay off the nearly $1.7 trillion owed in student loan debt. Nearly a third of borrowers were in default before – and that number is likely to grow in the coming months as the COVID-19 pandemic grows more serious. With local and national leaders calling on people to limit social interactions, self quarantine, and work from home, many are facing reduced hours at work – or no work at all. 

In late March, Congress passed the CARES Act. This made a couple of important changes that will be applied automatically and will be in place through the end of September.

1. No interest will accrue on federal student loans, for both students and their parents or guardians. 
2. All federally-held student loans are in forbearance, which is a temporary pause on your payments. If you made a payment between today and the national emergency declaration on March 13th, you can apply for a refund from your servicer. If you are in an income-driven repayment plan on track for Public Service Loan Forgiveness, each month of this period will still count as a “qualifying payment” to keep you in good standing.
3. Actions against defaulted student loan borrowers, such as wage garnishment and withholding of tax return funds, will be paused or eligible for a refund.
4. These benefits do not apply to private loans and some kinds of federally-backed loans, namely Perkins loans managed by your college or FFEL loans that were converted to private ownership.

Borrowers will get confirmation of these changes by mid April. These benefits will help most borrowers, especially those un-or underemployed because of the pandemic. If you log into your online account with your loan servicer, you should see a banner announcing that these changes are in progress in your account, or a flag that your regularly scheduled automatic payments are paused. If you still have stable income, it is worth considering still paying your loans, as any payments will be applied directly to the principal and cost you less in interest over time.

While private student loan servicers slowly move to provide similar benefits for borrowers, and work to help the most vulnerable borrowers more, there are a couple of ways you can try to reduce your student loan payments:

1. Discuss your options with your lender. Given that interest rates are falling in response to the slowing economy, refinancing at a lower interest rate with your private loan servicer might be possible. Beyond that, a multi-state agreement struck by governors with private lenders secured benefits for borrowers that are generally in line with the provisions for federal loan borrowers in the CARES Act:
1. Providing a minimum of 90 days of forbearance relief; 
2. Waiving late payment fees;
3. Ensuring no borrower is subject to negative credit reporting;
4. Ceasing debt collection lawsuits for 90 days; and
5. Working with eligible borrowers to enroll them in other applicable assistance programs.
6. Borrowers should contact their private lender to opt in to these relief measures as appropriate.
2. Switch to a plan with lower monthly payments tied to your actual income. If you have federal loans, you can switch to an income-driven repayment program online; if you have private loans, other lower-cost options might be available. After a conversation with your servicer and filling out a short form, your servicer will confirm your income with the IRS and adjust your payments accordingly. While it may take three weeks for your new loan repayment program to be started, the lower payments will last for a full year, and will be adjusted annually after you file your taxes. 
3. Ask for deferment or forbearance from your servicer. Many loan providers recognize these unusual times are putting a strain on individuals finances and they’d often prefer you eventually to pay off your debt on a longer timeline. While interest for private loans will still accrue during this pause, you will remain in good standing. This period in deferment may not count towards any loan forgiveness program you are part of, so ask your servicer which program is right for you. They’ll point you towards a short form to request the pause on your repayment.
4. Already in default? Look at federal loan cancellation or forgiveness programs to see if any are right for your situation.Three of the most common reasons for debt cancellation are if you attended a for-profit college that closed, have been a teacher for five years in a low-income community, or if have a permanent disability.

When reaching out to your loan servicer to explore these options, you’ll need some critical information.

1. Financial information: Have your social security number and login or account number, and know the most recent address you filed your taxes at – it will be used to automatically verify your most recent reported income. 

2. Explain your current circumstances: Calmly and clearly explain whether you’re unemployed, at reduced hours or other details of your situation, as that might help them steer you into a more suitable plan. You will want to have a picture of what your overall budget is so you can explain what upcoming bills you have and what you’re doing to maximize your ability to repay. And if you’re entering an income-driven repayment, this information will help your servicer determine what discretionary income you actually have to put towards your loans. 

3. Stay calm: These are stressful times, and it’s a hard situation. The customer service person you’re working with has been talking to others in these situations all day, and may have limited solutions. Be as patient as possible to enlist them in helping you identify a solution, and know that it could take a few weeks to get your new payment plan in place.

4. Try multiple avenues of contact: Keep in mind that phone customer service is likely to have long wait times, or be affected by the closure of physical call centers to prevent the spread of the coronavirus. Reach out to online customer service first to get help, or refer to the Department of Education’s frequently asked questions for students and borrowers.