Student Loan Relief: Common Student Loan Questions During COVID-19

 

This is a time of unprecedented economic turmoil. With businesses closed and employees furloughed or laid off, consumers at every income level are feeling the squeeze.

It's also a time of confusion, especially if you're buried in student loan debt. Washington has instituted special relief measures and allowances on federal loans. Meanwhile, many private lenders are temporarily letting borrowers defer payments.

Even so, policies are fast-changing and often unclear. Here are answers to common questions on student loan relief in the age of COVID-19.

 

 

I maxed out (or don't qualify for) the 36-month deferment. What should I do?

Federal student loan borrowers may defer loans for up to 36 months. After that, the best option is to switch to an income-based repayment plan. (You can apply for economic hardship deferments for a 12-month period, then re-apply up to two times.) Contact your loan provider to learn if you've reached the deferment limit, as well as what other options you may have.

This calculator Opens in new window can show you which plan offers the lowest payments. If you have a high debt-to-income ratio, your payments may even be reduced to $0. Graduated (payments that gradually increase every two years) or extended repayment plans also may be available. Ask your loan provider for details.

 

I have private loans. Should I try to defer them?

Some private lenders are offering temporary deferments, but many still charge interest during this time. Some may also require that you repay the amount deferred in a lump sum once the deferral period is over, which may be difficult with an absent or severely reduced income.

Call your loan provider and ask about your options. Every private lender has their own requirements and rules, and they often vary on a case-by-case basis. Ask what will happen to the amount you owe when the deferment period ends. For example, will you face any special fees or interest rate charges for deferring your payments?

 

I'm working toward Public Service Loan Forgiveness (PSLF) but lost my job. Am I still eligible?

PSLF Opens in new window is a program available to those with federal student loans. If you work for a qualified nonprofit or government organization and make payments on your federal loans, your remaining balance will be forgiven after 120 payments (your service doesn't have to be in consecutive months). The program was established in 2007 and had its first successful recipients in 2018 Opens in new window.

You can choose an income-based repayment plan, which will usually be the lowest-cost option. Also, you won't owe income tax on the forgiven loan balance.

If you've lost your job, you can defer payments until you get a new one. (For your payments to count toward PSLF, you must be working full time for a qualifying organization Opens in new window. So as soon as you land a PSLF-eligible job, submit a certification form Opens in new window with your new employer's information.)

 

Should I put my federal relief money toward my student loans?

If you received up to $1,200 as part of the federal COVID-19 relief program, putting the money toward your loans can be a great idea. But first consider your overall finances. For example, how long could you stay afloat without borrowing? If you don't have emergency savings that cover about six months' living expenses, that should be your top priority.

Job stability is also key. If you're self-employed or vulnerable to a layoff, consider saving your relief check even if you have a solid rainy-day fund.

Also consider other debt you may have—especially credit card balances at higher interest rates than your student loans. It's usually best to chip away at those first.

 

I was on an income-based payment plan, but I lost my job. Can I get a lower monthly payment?

If you're on an income-based repayment plan, you can apply for an updated payment Opens in new window as often as you need. (You'll have to provide proof of your lost income.)

If you get another job and want to increase your payments, you can re-submit the form.

 

Should I refinance to take advantage of lower interest rates?

One silver lining to this cloudy environment is that interest rates are historically low. If you have private loans, a high credit score and stable employment history, it's a great time to refinance because you may qualify for much lower rates—and payments—than you face today. There's also no limit on how often you can refinance student loans. Even if you did so last year, it may be worth considering again.

Even so, borrowers with federal loans should think twice about refinancing. When you refinance a federal loan, you give up related protections and benefits. Most of these, including income-based repayment options and extensive deferment programs, aren't available with private loans.

For example, as part of the CARES Act Opens in new window, federal borrowers could defer payments until Sept. 30 without accruing extra interest (that deadline was recently extended to the end of the year). Private lenders aren't offering similar options.

 

I can't afford to pay my private loans right now. What are my best options?

Contact your loan provider and ask about deferment options. Some lenders are offering 12- or 24-month deferment programs if you qualify. Make sure to call as soon as possible—especially if you're in danger of missing a payment.

 

Should I consolidate my federal loans?

The best answer depends on which type of federal loans you have. If you don't have federal Direct Loans Opens in new window, a Direct Consolidation Loan Opens in new window will give you access to income-based repayment options and PSLF.

If you do have Direct Loans, you can still move them into a Direct Consolidation Loan—but the clock will start over for PSLF-eligible payments. For example, if you've already made 12 payments toward your PSLF total, by consolidating you'll lose credit for all 12.

 

Should I repay more to certain loans than others?

It's best to put extra money toward private loans before federal loans. That's because private loans usually have less favorable terms and higher interest rates, so (as with high-rate credit cards and other loans), paying them first will cut the overall interest you owe.

If you have subsidized and unsubsidized federal loans, pay more toward the unsubsidized loans. The reason: Interest on unsubsidized loans continues to accrue even while payments are deferred.

 

Where can I find loan refinance details?

Among the most popular student loan refinancers:

• SoFi Opens in new window:

  Refinancing with a special focus on Parent PLUS refinancing and medical school loan refinancing.

• CommonBond Opens in new window:

  Refinancing with up to 24 months of forbearance (payments are postponed or reduced, but interest continues to accrue).

• Earnest Opens in new window:

  Variable- and fixed-rate loans. Also, graduates can skip one payment a year.

• Laurel Road Opens in new window:

  Undergraduate, medical and dental school refinancing, along with a forbearance program.

• LendKey Opens in new window:

  Refinancing for low-income students (annual income of $24,000+).

• Citizens Bank Opens in new window:

  Federal and private loan refinancing with terms from five to 20 years. Variable- and fixed-rate loans available.

• Wells Fargo Opens in new window:

  Federal and private loan refinancing with terms from five to 20 years. Variable- and fixed-rate loans available.

• PenFed Credit Union Opens in new window:

  Refinancing for students' and parents' loans. Variable and fixed rates available.

You should apply to as many lenders as you can within a short period of time (two weeks or so) to see where you can find the best rates and terms. (Generally, this shouldn't negatively affect your credit rating if you apply for all of them within those couple of weeks.)

 

Can I negotiate with lenders?

It's very hard to negotiate with student loan companies unless you refinance or switch to a different payment plan with the same lender. Your best option is to call the lender and ask about your options.

 

I just graduated or am about to graduate. What should I do about my loans?

If you recently graduated with federal loans, you have a six-month grace period before your first payment is due. (Interest on unsubsidized loans will still accrue during this time.) Borrowers with private loans may or may not have a grace period, depending on the loan provider.

You should use this time to figure out how much you can afford to pay every month. Some graduates can afford the standard payment, while others are better off switching to an income-based, graduated, or extended payment plan.

 

My parents co-signed my loan. What should I know?

If your parents co-signed your loan(s), they're legally liable for the debt if you stop making payments. If you miss a payment (or, worse, default), their credit report (and potentially their credit score) will take the hit.

The only way to remove a co-signer from a loan is to refinance. To do so, you'll need a good credit score, steady job, and stable income. If that doesn't describe your situation, the best thing you can do to protect your co-signers' credit is to avoid missing any payments.

 

My parents borrowed to help pay for my education. What should they know?

Parents with federal student loans have many of the same repayment options as their children. If your parents took out Direct PLUS loans, they can switch to a graduated, extended, or income-based repayment option (the latter is available only if the loans are bunched into a Direct Consolidation Loan Opens in new window).

If the loans are private, your parents may be able to refinance at lower interest rates. (They can refinance federal loans to a private loan with a lower rate, but they'll give up federal benefits and protections, such as income-based repayment options, deferment, and forbearance.)

 

If I return to school, are my loan payments deferred? What about the interest?

You can defer payments while enrolled in undergrad or grad school as long as you're attending at least part time Opens in new window (six or more credit hours per semester).

Even so, unless your federal loans are subsidized, interest will accrue even while you're back to school.

 

Can I switch to interest-only payments during the COVID-19 crisis?

Federal loan borrowers can switch to income-based, graduated, or extended repayment options to lower their payments. Unfortunately, you can't make interest-only payments on federal loans unless you're in deferment or forbearance.

Private lenders might allow interest-only payments, but you'll have to ask. (Be aware that paying interest alone may prolong your total repayment term. Only choose this option if you can't afford regular payments.)

 

You might also like:

• Consolidating Your Student Loans
• Financial Planning During COVID-19

Footnotes

 

Zina Kumok is a freelance writer specializing in personal finance. She has written for the Associated Press, Indianapolis Monthly and more. She also writes a blog about how she paid off her student loans in three years.

 

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