Coronavirus will have far-reaching impacts for us all. Here’s what student loan borrowers need to know about managing student loan debt during this difficult time.
Consider Whether You Need to Apply for a Forbearance and Suspend Auto-Payments
Many borrowers have authorized their loan servicing companies to automatically withdraw payments on a monthly basis. If you need to stop making payments for a while, contact the company that services your loans right away. Your loan servicer will allow you to temporarily stop making payments on your loans through a deferment or forbearance. Staying in touch with your loan servicer helps prevent the negative consequences of delinquency or default.
Loan servicing companies don’t always act immediately. If you don’t have enough in the bank to cover your payment while you apply for a forbearance, you can avoid overdraft fees by withdrawing your consent to auto-payments (most servicing companies let you do this online).
If you aren’t sure which company services your loans, you can log in and look that up here: https://studentaid.gov/ Note that a Federal Perkins Loan is a campus-based federal loan, so if you have Perkins loans, you’ll need to reach out to the school you attended when you borrowed the Perkins Loan.
Private student loan lenders might work with you to postpone payments, but you don’t have the same rights to deferment and forbearance with private loans. That said, during these unusual times, it makes sense to request accommodations.
Consider Applying for Income-Driven Repayment or Recalculation of Your Payment Amount
If you are enrolled in a standard term repayment plan, you may be able to change to a different repayment plan that would give you a lower monthly payment. Federal student loans allow for income-driven repayment plans that set payments at a percentage of income. To learn more about income-driven repayment, visit https://studentaid.gov/idr.
If you are currently on an income-driven repayment plan and you've had a significant change in income, you can ask to have your monthly payment recalculated at any time. Apply for income-driven repayment or to have your payment amount recalculated based on any reduction in the income you may be experiencing at https://studentaid.gov/
Recently Announced Interest Waiver for Federally Held Student Loans
The President announced on Friday, March 13, 2020 that interest on federally held student loans would be suspended indefinitely and effective immediately. Typically, “federally held” means those federal student loans that are Direct Loans, including Direct Subsidized, Direct Unsubsidized, Direct Graduate PLUS, Direct Parent PLUS, and Direct Consolidation loans, but does not include most older federal loans from the FFEL program. Private loans will not qualify.
A spokesperson for the Department of Education has said that the interest waiver will be automatic and retroactive to March 13, 2020. For this reason, no application is expected to be necessary. The details are still sketchy, and the companies that service our loans are awaiting further guidance.
Student loan borrowers should check their accounts periodically and look for updates over time. If you can afford to continue making payments, the interest rate waiver is a unique opportunity to reduce your principal balance (but note that if you have unpaid interest outstanding, your payments generally are applied to accrued interest before principal).
Public Service Loan Forgiveness Requires 120 “Qualifying” Payments
Borrowers working toward Public Service Loan Forgiveness (PSLF) should understand that if you don’t make a payment for a month (for example, because you choose deferment or forbearance), that month will not count toward PSLF. But qualifying payments do not need to be consecutive and you will not lose credit for payments that you’ve already made. Borrowers seeking PSLF are generally enrolled in income-driven repayment plans—if you’ve had a reduction in the income you can recertify your income early, to reduce required payments due to a drop in income.
If you are using paid sick leave or other leave time, your employer is permitted to consider that time as hours worked for meeting the full-time requirement of PSLF. If your public service employer does not consider you to be working full-time during this period, then you cannot make payments that count toward PSLF. To learn more about PSLF, visit https://studentaid.gov/publicservice.
Advocate for Additional Relief
Advocates for student loan borrowers, including the National Consumer Law Center, are urging policymakers to take additional actions such as implementing a moratorium on student loan payments during the public health emergency. The National Consumer Law Center recommends that once borrowers who are in income-driven repayment (IDR) or standard ten-year plan resume payments, the months spent under the moratorium should be credited towards either IDR or PSLF forgiveness.
Consumer advocates recommend that wage garnishment, social security offset, and tax refund offset should be stopped immediately to protect those most financially vulnerable to the impact of the coronavirus.
About the Author
Heather Jarvis has provided student loan education and consultation for universities, associations, and professional advisors since 2005. Heather graduated cum laude from Duke University School of Law in 1998 and dedicates her professional efforts advocating on behalf of high-debt student loan borrowers.