In the Money: COVID-19 Student Loan Relief
On March 27, 2020, President Trump signed the CARES Act into law, which provides relief for federal student loan borrowers.
Due to the COVID-19 national emergency federal student loan borrowers are automatically being placed into an administrative forbearance which allows you to temporarily stop making your monthly loan payments for at least 6-months but you can still make payments if you choose to. From March 13, 2020 through September 30, 2020, the interest rate is going to be set to 0% on the following types of federal student loans owned by the Department of Education:
Defaulted and non-defaulted Direct Loans
Defaulted and non-defaulted FFEL Program Loans
Federal Perkins Loans
Many borrowers understandably still have some unanswered questions, so continue reading for more information.
How can you take advantage of this 0% interest period?
During the period of 0% interest, the full amount of your payments will be applied to the principal balance once all the interest that accrued prior to March 13 is paid. This in turn will lower your principal balance, save you money on interest and can help you pay off your student loans faster!
What about the Income-driven repayment plan?
If you are currently in an income-driven payment plan, your suspended payments will still count towards student loan forgiveness. If you would like to enroll in an income-driven plan for the first time, visit studentaid.gov/idr, click on “apply now,” and start the application.
Will suspended payments count towards Public Service Loan Forgiveness?
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 the suspended payments will count as if you made on-time monthly payments.
What if I am trying to rehabilitate my defaulted student loan?
The suspended payments will count towards your rehabilitation. If certain wages were garnished, you can request a refund.
What about auto-debit payments?
Auto-debit payments are suspended during the administrative forbearance. Any auto-debit payments that are processed between March 13, 2020 and September 30, 2020 can be refunded to you. If you want to request a refund you may contact your student loan service provider.
How much can this relief save you?
While this depends on your loan balance and interest rate, a borrower with about $50,000 in federal student loans at an interest rate of 6% will save about $250 per month during the forbearance.
If you were concerned about your student loan repayment during these uncertain times, the CARES act has been signed into law to provide you with some relief. The 0% interest period and administrative forbearance is currently set to expire September 30, 2020. Your student loan provider will contact you, no later than August to remind you when you need to start making payments again. Meanwhile, you still have the option to make a payment on your loan to make progress towards reducing your balance which can help you pay off your student loans faster and save you money in interest!
Disclaimer: this is intended for informational purposes only and should not be construed as personalized investment, legal or financial advice. Please consult your investment, legal and financial professional(s) regarding your unique situation.