When assessing your options with your student loan payments, be sure to know if your loan is federally insured or privately owned.
With unemployment levels rising and many employers cutting work hours, lots of college grads are now struggling to meet their student loan payments. Thankfully, the federal government has passed legislation to ease this burden. Unfortunately, though, many borrowers are confused about the terms and conditions of these changes.
Here’s all you need to know about the changes to student loan debt during the coronavirus pandemic.
Some states, private lenders, and the Government are offering student loan aid for struggling borrowers.
If your student loan is a private student loan and you are struggling to meet your payments, there may still be options available, such as loan deferment or forbearance. If you are in need of such assistance, contact your lender or servicer directly to discuss your options. Many lenders are allowing deferments up to a total of 9 months on private student loans. The interest does accrue during this period and in many cases can be added on the balance owed. By doing so you may extend the length of time it takes to pay the loan off.
You may have Government-insured loans in addition to private student loans or backed student loans.
The US government is also working with individuals that may be struggling during these times. All federal student loan payments are automatically suspended for six months
As part of The Coronavirus Aid, Relief and Economic Security Act (the CARES Act) signed into law on March 27 all federal student loan payments are suspended, interest-free, through Sept. 30, 2020. If borrowers continue making payments, the full amount will be applied to the principal of the loan. The suspension applies to all federal student loans owned by the Department of Education as well as some Federal Family Education Loans (FFEL) and some Perkins loans. Students do not have to take any action or pay any fees for the suspension to take effect.
Additionally, during the suspension period, the CARES Act does not allow student loan servicers to report to the credit bureaus borrower non-payments as missed payments. Therefore, the suspension should not have a negative effect on borrowers’ credit scores.
If you’re not sure whether your student loan is federally owned, you can look it up on the Federal Student Aid (FSA) website. Be sure to have your FSA ID handy so you can sign in and look up your loans. You can also call your loan servicer directly to clear up any confusion.
Here is the contact information for federal student loan servicers:
FedLoan Servicing (PHEAA): 1-800-699-2908
Granite State — GSMR: 1-888-556-0022
Great Lakes Educational Loan Services, Inc.: 1-800-236-4300
OSLA Servicing: 1-866-264-9762
Suspended payments count toward Public Service Loan Forgiveness and loan rehabilitation.
Public Service Loan Forgiveness (PSLF) is a federal program allowing borrowers to have their student loans forgiven, tax-free, with the stipulation that they work in the public sector and make 120 qualifying monthly payments. Disruption of these 120 payments can disqualify a borrower from the program.
According to the CARES Act, suspended payments will be treated as regular payments toward PSLF. This ensures that borrowers who have been working toward these programs will not lose the progress they’ve made toward loan forgiveness.
The same rule applies to individuals participating in student loan rehabilitation, during which borrowers with defaulted student loans must make nine out of 10 consecutive monthly payments to pull their loans out of default. The U.S. Department of Education will consider the six-month suspension on payments as if regular payments were made toward rehabilitation.
Consider an income-driven repayment plan.
If you have an FFEL that is ineligible for suspension, you can lower your monthly payments by enrolling in an income-based repayment plan, which adjusts your monthly student loan payment amount according to your discretionary income. Other lenders offer similar plans, often referred to as income-driven repayment plans. If your salary was cut as a result of COVID-19, or you are currently unemployed, these plans can provide relief by making your monthly payments more manageable.
Employers can contribute toward employees’ student loan debt for temporary tax relief
The federal government offered temporary tax relief for employers contributing up to $5,350 toward their employees’ student loan payments. This benefit is in effect until Jan. 1, 2021 and it can be used for any kind of student debt, whether federal or private. Ask your employer if they participate.
If you don’t qualify for student loan payment suspension or deferment, you can also try contacting Greenpath Financial Wellness for financial counseling. You can access their website at www.greenpath.com.