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What COVID-19 Student Loan Relief Really Means

COVID-19 (aka the new coronavirus) is creating a wave of societal and economic impacts worldwide. In the U.S., our daily lives are really feeling the hit of the dangerous pandemic. As medical leaders and government officials evaluate public health risks as well as the economic impacts, new efforts may help Americans find financial relief. Many of these new moves focus on student loan relief specifically. 

On Friday, March 27, President Trump signed into law the CARES Act, a $2 trillion stimulus bill to help the American people through the coronavirus crisis. Among other stimulus efforts, the CARES Act details many student loan relief benefits. Some of these benefits were previously outlined in announcements made by U.S. Secretary of Education Betsy DeVos and President Trump.

Here’s what these COVID-19 student loan relief efforts mean for Americans with student loan debt.

Your federal student loan payments should be automatically suspended

All federal student loan servicers have been directed to automatically suspend all payments (and interest). As a federal student loan borrower, you do not need to do anything to be granted this administrative forbearance. All payments should be suspended until September 30, 2020.

This also means that any autopay agreement you may have set up with your servicer will be suspended. In the instance that an automatic payment goes through between March 13 and September 30, you should be able to reach out to your servicer to arrange a refund. If you’d rather continue paying during this time via autopay, you can contact your servicer to opt out of the forbearance and continue automatic payments. Keep in mind that you can remain in forbearance and still choose to make manual payments. 

If your loans become delinquent, there is a safety net

DeVos also authorized a safety net for federal borrowers who are delinquent or who become delinquent as of March 13. For any borrower who is or becomes more than 31 days delinquent, there will be an automatic suspension of payments.

While this is assuring, it is also temporary. If you fall into delinquency and continue to have difficulties getting out of it after September 30, you could face penalties down the road, including default status. Check out our guide to getting out of student loan default for options including loan consolidation, refinancing, and rehabilitation.

Collection of defaulted student loans is paused during the pandemic

As of March 24, 2020, the Department of Education halted the collection of defaulted federal student loan debt. They have ordered private collection firms to cease their collection activities against federal borrowers until told otherwise. This means that they cannot currently send collection notices, contact borrowers, or garnish wages, tax refunds, or social security benefits for student loan debt.

So if you’re in default and struggling financially in the midst of the COVID-19 chaos, you should be safe from those collection agencies for now. Just remember: This doesn’t mean the government is forgetting about your defaulted student loan debt. It just means they will not be pursuing collection actions against you until after September 30.

And here’s an important note for borrowers attempting to rehabilitate their defaulted student loans: Any suspended payments will still count towards rehabilitation. 

The interest will be automatically waived, but not forever

High interest rates are a burden for many borrowers, especially when payments may be unaffordable. The waived interest rates can cut some much-needed slack, but that doesn’t mean you are totally off the hook for satisfying your monthly bill.

You don’t have to apply or contact your student loan servicer for the interest fee removal related to coronavirus. The Education Department says that servicers should make the change in about a week. The waiver should be retroactive to Friday, March 13.

As of right now, the interest rates are set at 0% until September 30. The effects of COVID-19 will be monumental for your daily life. However, they won’t be eternal for your wallet. It’s important to keep up with official news regarding any financial relief programs before counting your long-term eggs.

How the waiver works for federal student loan rates

Federal student loan rates are based on the 10-year Treasury note yield, which is currently below zero. This means it could change depending on the school year acquired. For instance, federal loan in Fall 2010 was at 4.5 percent versus a 3.4 percent interest rate in Spring 2012. The interest relief will temporarily set both loan interests at zero, regardless of the initial rate.

Not all student loans are made equal for relief

At this time, all federally-held student loans are affected by these changes. However, these relief efforts do not affect any commercially-owned FFEL loans, some Perkins loans owned by institutions, and loans issued through private lenders like Sallie Mae.

While many private lenders are offering relief options for borrowers, these options are not the same across the board. If you have a private student loan, you’ll need to check with your servicer to see what is available to you.

There’s no student loan forgiveness offered but there is one forgiveness-related perk

The CARES Act does not include any direct student loan forgiveness plans due to the coronavirus crisis. So don’t expect your student loan balance to magically lower during this time.

However, there is one big perk included for those seeking Public Service Loan Forgiveness (PSLF). If you are currently working to get PSLF but you would like to request a forbearance offered through the CARES Act, your skipped payments will still count toward your PSLF requirements. That’s right. Even if you choose not to make your payments until September 30, those skipped payments will count toward the required 120 monthly payments under PSLF. Just be sure you get approval for a forbearance before skipping any payments.

Continue to make your student loan payments if you can

The unknowns can be scary, but do what you can control. If you’re able to, this includes continuing to pay what you owe monthly on your student loans. Any payments made between now and September 30 will be applied to the principal amount of your loan(s) once the interest accrued prior to March 13 is paid.

The only exception to this suggestion? Those seeking PSLF who receive a forbearance may find it more beneficial to skip payments and still have them apply towards their forgiveness requirements. 

Keep calm

The biggest action item out of all of this? Don’t panic. Yes, things are going to be different, and hopefully just for a short season. Rely on your community, family, and social-distancing-friendly services to help you get through the unknowns.

If you have questions regarding your student loan payment situation, MoneySolver’s Student Loan Advisors are answering calls and can help you apply for additional relief.

This blog post was last edited on April 14, 2020.