Thanks to coronavirus student loan relief measures, you’re done with required federal student loan payments until 2021.
The interest-free pause on student loan payments was set to expire on September 30, but President Trump’s August 8 memorandum extended forbearance through December 31—check out our full coverage of the polices here.
Of course, that doesn’t mean you should sit by and do nothing with your loans until January 1 rolls around.
Instead, you should read on to learn about the student loan grace and forbearance coronavirus relief measures as well as what actions you can take now to stay on top of your student loans.
It Lasts Until the End of 2020
Unless challenged, President Trumps’ August 8 memorandum extends student loan grace and forbearance coronavirus relief measures through December 31, 2020.
Payment on qualifying federal student loans does not resume until January 1, 2021.
It Only Applies to ED-Backed Federal Student Loans
The CARES Act and Trumps’ memorandum only apply to the following loan types:
- Direct Loans – defaulted and non-defaulted
- FFEL Program Loans – defaulted and non-defaulted
- Federal Perkins Loans – defaulted and non-defaulted
- HEAL Loans – defaulted
Relief measures don’t apply to FFEL loans, Perkins Loans, or HEAL loans that aren’t backed by the Department of Education. Visit the National Student Loan Data System to find out who owns your student loans.
It Doesn’t Apply to Private Student Loans
Private student loans weren’t included in the relief measures. If you own private student debt and need relief, talk to your lender directly. Your lender might offer private student loan coronavirus relief or forbearance due to the economic hardship.
If they don’t, consider refinancing to a lender that does. More on that below.
Your Monthly Payments are Suspended
Borrowers with qualifying loans do not owe any monthly payments during the coronavirus administrative forbearance. All auto-debit payments are suspended.
If an auto-debit payment was processed between March 13, 2020, and December 31, 2020, contact your loan servicer for a refund.
Interest Doesn’t Accrue on Federal Student Loans
Coronavirus student loan forbearance works differently than traditional forbearance options. Interest does not accrue on your qualifying loans—even the unsubsidized ones. Beginning March 13 through December 31, 2020, the interest rate on all qualifying loans is set to 0%.
Your Grace Period Automatically Transitions to Forbearance
For any borrowers in their grace period before payment suspension started, the grace period automatically turned into administrative forbearance. Instead of some of your loans—the unsubsidized ones—accruing interest in a grace period, all of your qualifying loans will have a 0% interest rate in forbearance.
Any unpaid interest that accrued during your grace period before it switched to administrative forbearance will capitalize whenever your loan enters repayment. At this point, that will be January 1, 2021.
The Months Still Count for Loan Forgiveness and Loan Rehabilitation Programs
If you’re working toward income-driven repayment forgiveness, public service loan forgiveness, or temporary public service loan forgiveness, the months during coronavirus forbearance still count.
Suspended payments also count toward the nine months you need for student loan rehabilitation. Only the months after you enter a rehabilitation agreement count.
We Don’t Know Yet if It Will Be Extended
We’ve already seen the deadline extended, so another extension seems possible. We just don’t know. With talks of another stimulus plan continuing, we could hear soon if it will include further relief for student loan borrowers.
What You Can Do During Forbearance
Everyone’s qualifying federal student loans automatically entered administrative forbearance when the CARES Act passed. That doesn’t mean you should just ignore your loans until payments resume, though.
Here are several different moves you can choose to make while your federal student loans are in administrative forbearance:
Continue to Make Payments on Your Federal Loans
During the forbearance period, your loan balance isn’t growing, but it’s also not shrinking.
If you’re able, you can continue to make payments on your federal student loans while they are in administrative forbearance. But you will need to make these payments manually.
Any payments made will first cover any interest that accrued before rates went to 0% and then principal.
You can also make payments on any higher interest rate debt first, like private student loans or credit cards. Focusing on debts with the highest interest rates first is called the avalanche method. The Unbury Me debt calculator can help you get started.
Opt-Out of Forbearance
Your qualifying loans automatically entered administrative forbearance. If you want, you can opt-out of this forbearance.
Why would you give up paused payments?
You’d do this if you want to continue to receive bills and make payments via autopay. Loans in forbearance aren’t eligible for autopay. Any monthly payments you want to make, you’ll have to make manually.
Opt Back into Forbearance
Did you opt-out of administrative forbearance and then experience a change in income? You can opt back into administrative forbearance by contacting your loan servicer.
Other options include remaining in forbearance and enrolling in an income-driven repayment plan or recertifying your income for your current IDR. That way, you can lower your monthly payment but continue receiving a bill and making auto-debit payments.
Consolidate Other Federal Debt to Make It Eligible
If you have FFEL, Perkins Loans, or HEAL loans not backed by the ED, you might be able to consolidate them into a Direct Consolidation Loan. Since the Department of Education backs Direct Consolidation Loans, that new loan would be eligible for student loan grace and forbearance coronavirus relief.
Just know that the new interest rate of your consolidated loan (after the 0% interest rate ends) might be higher than your current one(s). Consolidating can also trigger outstanding interest to capitalize, driving up the cost of the loan.
Speak to your loan servicer directly to learn more about your options.
Enroll in an Income-Driven Repayment Plan
While payments are paused, take time to evaluate the different income-driven repayment plans (IDRs) offered by the federal government. An income-driven repayment plan can make your loans more manageable when monthly payments resume.
You have four options:
- Revised Pay As You Earn Repayment Plan (REPAYE): monthly payment equals 10% of your discretionary income divided by 12; takes family size, adjusted gross income, and federal student loan balance into account
- Pay As You Earn Repayment Plan (PAYE): monthly payment equals 10% of your discretionary income divided by 12; takes federal student loan balance, adjusted gross income, and family size into account
- Income-Based Repayment Plan (IBR): caps monthly payment at 15% of your discretionary income (10% for new borrowers) divided by 12; many borrowers owe $0 each month
- Income-Contingent Repayment Plan (ICR): monthly payment equals the lesser of 20% of your discretionary income divided by 12 or what you’d owe on a repayment plan with a fixed payment over 12 years (adjusted based on your income)
Borrowers who experience a significant drop in income or job loss should really consider enrolling in an IDR. Use our Student Loan Payment Calculator tool to see which one best meets your needs. Then, submit an income-driven repayment plan request at the FederalStudentAid website. It takes just 10 minutes to apply.
Recertify Your Information
Are you already enrolled in an income-driven repayment plan? Your recertification deadline has been changed. You won’t HAVE to recertify your income until after December 31, 2020. Your lender will notify you when it’s time.
However, if you’re unemployed due to COVID-19 or your income has dropped, you may WANT to recertify early. That way, you can determine your eligibility for a lower payment amount once payments resume in 2021.
Refinance Your Private Student Loans
If you’re still doing alight financially, now is a great time to refinance your private student loans. Interest rates for private student loan refinancing are extremely low. Plus, refinancing can help you pay off your loans faster, lower your monthly payment, release a cosigner, or get forbearance or deferment options your current lender doesn’t offer.
Review the best student loan refinancing companies we work with to learn more about your options.
The Bottom Line on Student Loan Grace and Forbearance Coronavirus Relief Measures
Once the student loan relief measures expire, you’ll need to find a way to manage your federal student loans. Use the time you have now to make and carry out a plan.
Maybe it’s refinancing your private student loans to secure a lower monthly payment. That way, come January, your total (private + federal) monthly student loan payment won’t be as high. Or maybe it’s enrolling in an income-driven repayment plan.
Whatever you decide to do, the sooner you get started, the better.
For more details about how the COVID-19 emergency has affected student loans, visit the Federal Student Aid website.
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