Student loans reached $1.48 trillion in America by the end of 2019, with approximately 45 million borrowers across the United States.1 Amidst the COVID-19 pandemic, many Americans have experienced financial instability. This means that for 45 million Americans, paying down student loan debt may be harder than ever before.
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020. While this stimulus package provides a wide array of assistance for families and businesses, it also made some important changes to assist federal student loan borrowers.
In response to these changes, we’ve provided the answers to a few important questions regarding student loan debt during the current pandemic.
Question #1: Are Interest & Payments Suspended on All Student Loans?
The suspension of payments applies only to student loans that are held by the federal government. However, your FFEL (Federal Family Education Loan) lender or school may suspend interest and payments voluntarily, but they are not required to do so.
In regards to your federal student loans, your servicer will suspend all interest and payments through September 30, 2020.2
The benefits authorized by the CARES Act do not apply to private student loans that are owned by banks, credit unions, schools or other private entities. If you are trying to suspend payments to these institutions, you will need to contact them and find out what your options are.
Question #2: Should I Apply to Suspend My Payments or Interest?
Until September 30, 2020, there will be no interest accrued or payments due for federal student loans.2 No action is required on your part, as these payments will be stopped automatically.
Question #3: What Should I Do if I’m Behind on Payments?
On March 25, 2020, the Department of Education announced that it would not be withholding federal tax refunds, Social Security payments or garnishing wages from those who have defaulted on their federal student loan payments.3 Additionally, private collection agencies contracted by the government will put a pause on attempting to contact defaulted borrowers.
Any defaulted federal student loan will not collect interest until September 30, 2020.3
Question #4: Will Suspended Payments Count Toward Public Loan Service Forgiveness (PSLF)?
If you have a Direct Loan, were on a qualifying repayment plan prior to the suspension, and work full-time for a qualifying employer during the suspension, then you will receive credit toward PSLF for the period of suspension as though you made on-time monthly payments.4
Question #5: What If I Want to Continue Making Payments, or Make a Partial Payment While My Loan is in Forbearance?
As long as you are in forbearance, you will not be penalized for making a payment that is less than your usual monthly payment. Meanwhile, you still have the option to make a payment on your loan to make progress toward reducing your balance. Contact your loan servicer or visit your servicer’s website to make a manual payment or to find out how you can continue or start auto-debit payments.4
As you navigate a “new normal” through the COVID-19 pandemic, it’s likely you’re experiencing a certain level of financial stress. Continuing to make regular payments to your federal student loans can be beneficial in the long-run, but it’s important to know your options have changed. If you’re unsure whether to stop payments or not, get in touch with your financial advisor first. Together, you can make a game plan moving forward.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.