Handling Student Loans During the Pandemic

    COVID-19 has put a plug in the nation’s cash flow, forcing graduates to dig deeper into their pockets if they want to avoid drowning in student loan debt.

    Fortunately, the CARES Act, signed into law on Mar. 23, halts student loan payments and stops interest from accruing on federal student loans until Sept. 30, 2020.

    Below we’ll discuss how to take advantage of the student loan forgiveness in the CARES act and what to do about your student loans after Sept. 30.

    Repaying Student Loans During COVID-19

    The government has suspended federal student loan payments for six months, beginning Mar. 13 and ending Sept. 30. This is what they mean by “administrative forbearance” and it applies to all federal student loans owned by the Department of Education (ED).

    Whether you were on an income-driven or standard repayment plan doesn’t matter.

    No interest will accrue, and nothing is due from you. If your loans are eligible, the CARES Act will automatically apply to them. There’s no need to set anything up, however, if you’re unsure about your eligibility you should contact your student loan provider.

    If you have money available, you may want to keep paying your loans, since you will be able to tackle the principle directly, without having to deal with interest. Draining the principle will mean a smaller loan amount for interest to leach off. When all is said and done, this will save you money.

    Note, your payment will only go towards your principle once the interest that accrued prior to Mar. 13 has been paid.

    Federal Student Loans Under the 2020 CARES Act

    Under the CARES Act, the following loans will carry 0% interest rates from Mar. 13, 2020, through Sept. 30, 2020.

    • Defaulted and non-defaulted Direct Loans
    • Defaulted and non-defaulted FFEL Program loans
    • Defaulted and non-defaulted Federal Perkins Loans
    • Defaulted HEAL loans

    These loans must be owned by the Department of Education (ED). The ED makes this distinction because some loans (certain FFEL, HEAL, and Perkins loans) are owned by universities. As of Aug. 7, 2020, these loans are not eligible for the CARES Act.

    You should still, however, call up your service provider and ask what benefits may be available.

    If you’re a current student, the CARES Act covers you as well. Funds have been made available to students in the form of grants to cover food, housing, course materials, and healthcare. Your school decides the criteria needed to qualify for a grant, so get in touch with your financial aid office to learn more.

    Income-Driven Repayment Plan Under the CARES Act

    If you’re on an income-driven repayment plan, you don’t need to do anything to take advantage of 0% interest. Benefits are automatically applied to your account. The months of suspended payments still count towards IDR and Public Service loan forgiveness. So long as all other qualifications are met, you don’t have to worry about derailing your plans to opt-out of your loans down the line.

    Another thing to note is that the CARES Act has pushed back the IDR re-certification deadline. Before, you had to re-certify every year to make sure you were still eligible for an income-driven repayment plan. The CARES Act extends the deadline by six months. So, if you were due to re-certify in August 2020, you won’t have to actually re-certify until February 2020.

    President Trump Signs Memorandum Extending Student Loan Payment Relief During COVID-19 Pandemic

    On Aug. 8, the president signed a memorandum extending the suspension of student loan payments through the end of the year. This means you won’t have any federal student loan payments due for the rest of 2020.

    Congress could still pass a law adding further extensions and suspensions, but if things hold as they are, expect payments to return (and for interest to resume building) after Dec. 31, 2020.

    Concerning Public Service Loan Forgiveness: President Trump’s latest order lacks the language that would allow for PSLF borrowers to receive credit for payments missed under administrative forbearance. This means the months between September 30th– December 31st won’t count towards PSLF unless you make your scheduled payments.

    Private Student Loan Options During COVID-19

    The above student loan relief is for federal student loans only, since private student loans are not covered by the CARES Act. You need to keep paying your private student loans if you don’t want to default. If you’re struggling to keep up with payments, get in touch with your lender and ask about any hardship programs it may provide.

    You may also want to see if student loan refinancing is a viable option. You might be able to save some money with a lower interest rate, but if you’re enjoying interest rates below 4.5% and aren’t experiencing severe hardship due to COVID-19, you’re probably better off sticking with your current loan provider.

    Should You Continue to Make Student Loan Payments?

    Despite the available relief options, it might be wise to continue making those student loan payments – if you can afford it.

    You can save a lot of money by paying off your loans while the interest is suspended. For example, let’s assume you have a loan amount of $35,000, the average balance seniors from the class of 2020 graduated with and the interest on your account is 4.5%.

    To get the amount of interest you’re being charged daily we would do a simple calculation:

    ($35,000 * 0.045)/365 = $4.315

    Rounding up, your daily interest comes out to $4.32. Multiply this by 30 to get your monthly interest charge of $130. This is the amount you’re being charged every month to borrow money.

    If your monthly payment is $350, that means $130 goes to interest and $220 goes to principal making your new principal amount $34,780.

    When interest is suspended all the money you pay goes to your principal. A $350 payment drops your new loan amount to $34,650. This means not only do you save $120 (since it would’ve gotten eaten up by interest), but you’re also left with a lower loan amount. A lower loan amount will give interest less to build off of leading to even more savings.

    Author

    Bents Dulcio
    Staff Writer

    Bents Dulcio graduated from Florida State University in 2016 with a degree in Political Science, and knows a thing or two about Millennial student loan debt. While in school, he developed a passion for classic literature, reading books by authors from Homer to Adam Smith and developed a penchant for dealing with tight financial circumstances. Bents used the student loan money to pursue a semester of language study in France that helped convince him to become a writer. Bents still hits the books – he read 70 in the past year – and still knows how to cut corners financially.

    In debt? We can help!

    • Amount
    • Type
    • Contact

    How much do you owe?

    What can we help you with today?

    Related Articles

    Second stimulus check on top of the first stimulus check

    Will There Still Be a Second Stimulus Check?

    Remember the second stimulus check?Forget it.Members of Congress have many things on their minds between now and election day, but sending another direct payment of $1,200 to U.S. workers, is not one of them.A second round of COVID-19 relief for ...

    Continue Reading
    Workers lined up for unemployment during the COVID-19 pandemic

    $300 Federal Unemployment Benefits

    When Congress left Washington in early August, they had yet to agree on the specifics of a second stimulus package. They reconvene Sept. 8, and if a deal is reached in the first days or week after returning, you could receive a second stimulus check by early ...

    Continue Reading
    For sale sign in front yard of house

    Coronavirus and the Real Estate Market

    Dorothy surely wasn’t thinking of life in a COVID-19 pandemic when she clicked those heels in the “Wizard of Oz” and opined that ‘there’s no place like home.’But her words have proven true in 2020. In times of a contagious virus and high ...

    Continue Reading
    Senator Mitch McConnell at a podium

    Details on the HEALS Act

    Congress and the White House are still debating whether the HEALS Act, HEROES Act – or some compromise Act in between – will deliver the next round of coronavirus relief to a wobbly American economy, but at least they’ve set a deadline.Well, sort of ...

    Continue Reading
    Calendar with dart on second stimulus date

    When Will a Second Stimulus Check be Delivered?

    As warring congressional leaders play chicken with the nation’s fifth round of coronavirus-related relief, the only apparent certainty is a second stimulus check will, eventually, find their way into America’s bank accounts.In a perfect world, the ...

    Continue Reading
    Document titled Unemployment Benefits

    New Federal Unemployment Benefits Proposed in the HEALS Act

    If you've lost your job due to the coronavirus crisis, your unemployment benefits are likely to decrease very soon.It's just a question of how much.That will be decided the next two weeks as the Senate and House try to hammer out the differences in ...

    Continue Reading
    Nancy Pelosi at a podium

    Details on the HEROES Act

    When the House of Representative passed the $3-trillion HEROES Act on May 15, it all but guaranteed that a second stimulus check would arrive for Americans in need of financial help for COVID-19.How much that guarantee is worth and when it will be ...

    Continue Reading
    Bankruptcy court with COVID-19 sign

    COVID-19 Bankruptcies

    The storm is coming. American consumers will be filing personal bankruptcies in record numbers by the end of 2020.That is the projection from bankruptcy attorneys, bankers and other experts who project that the COVID-19 era will lead to a historic ...

    Continue Reading
    Get Help Now

    Overwhelmed with debt? You have options for lower monthly payments!

    x