COVID-19 and Student Loans: How to Get Relief

Amid the health concerns associated with the global pandemic, the coronavirus has brought with it business closures, stock market volatility, and unprecedented economic uncertainty. People are worried about their jobs, their savings, and—yes—their student loans. On March 13, 2020, the White House announced temporary relief measures for federal student loan borrowers, and this announcement was followed by further guidance from the Department of Education. Much of the relief was codified into law with Congress’ passage of an economic stimulus bill on March 27, with further extensions implemented through executive action. Here is a quick recap of the student loan relief program:

• Federal student loan interest has been dropped to 0% until September 30, 2021.
• Borrowers are placed into an immediate forbearance (suspension of payments) until September 30, 2021.
• Borrowers 31 days or more delinquent on their loans are granted an automatic forbearance.
• Automatic collection of defaulted federal loans has been paused.

While relief programs such as the above are—no doubt—appreciated by struggling borrowers, they can also be confusing. In order to ease some of the confusion of this already uncertain time, we’ve answered some of the most frequently asked student loan borrower questions below: How can I tell if my student loans qualify for temporary relief? You can log into your account on StudentAid.gov or into your student loan servicer’s website directly. Loans labeled as Direct Loans qualify for relief. Other federal loans that may be included are Federal Perkins Loans and Federal Family Education Loan (FFEL) program loans held by the Department of Education (ED). FFEL program loans that are owned by commercial lenders and some Perkins Loans held by colleges are not currently eligible for the relief program. These loans can, however, be consolidated into the Direct Loan program in order to gain eligibility, though note that federal consolidation may result in a slightly higher interest rate (once the temporary interest suspension is lifted) and the capitalization of any existing unpaid interest. Non-ED lenders can also provide relief on a voluntary basis. Private student loans are not eligible for the federal relief program. Will I see my monthly payment decrease during the national emergency? Yes, not only will your required monthly payment decrease, it will stop altogether and you will not be billed until after September 30. You will also accrue no interest during this forbearance time. What if I can make my monthly payment? If you can continue to make your monthly payments, do so. After any interest accrued prior to March 13 is paid, your entire payment will go toward the principle balance of your loan(s), and you will benefit from the 0% interest rate in terms of shorter repayment and lower total interest payments on your eligible loans. However, since payments (including auto-debits) have been automatically suspended, you must contact your loan servicer to indicate that you wish to opt out of the automatic forbearance. What if I can’t make my monthly payment? Your payments will automatically be suspended by your loan servicer. If you continue to be billed, contact your loan servicer immediately through their website or by phone. If you’re not sure who your loan servicer is, log in to your account on StudentAid.gov to find out. What if my period of unemployment or underemployment lasts longer than the national emergency? While an administrative forbearance is the quickest and most automatic way to pause your student loan payments, it is not a long-term solution.  Economic hardship deferment and income-driven repayment plans are options to explore if your period of financial distress continues for an extended period of time. I am currently repaying my loans on an income-driven repayment plan. I have experienced a loss of income, but my annual income certification is not due for some time. Can I request that my payments be reduced now?  If you are currently in an income-driven repayment plan and your income changes because of the coronavirus outbreak (or any other reason), you can request to have monthly payments recalculated by your loan servicer. Contact them through their website or by phone, and submit the required documentation. When payments resume after September 30, you will be billed at the newly calculated amount. I have been working towards Public Service Loan Forgiveness (PSLF), but need to take advantage of the automatic forbearance. Will I no longer qualify for forgiveness? Federal student loan borrowers working for an eligible not-for-profit or government sector employer who have been making eligible payments in hopes of eventually qualifying for PSLF will not jeopardize their PSLF status by taking advantage of a forbearance. While the 120 qualifying payments required to access PSLF never needed to be consecutive, Congress has authorized the Department of Education to count all months of forbearance undertaken under the COVID-19 relief program as if loan payments were made for the purposes of PSLF-eligibility. As stated above, if you expect your decrease in income to last an extended period of time, you can request that your servicer recalculate your income-driven repayment amount, noting that even zero-dollar income-driven payments count as eligible payments for the purposes of PSLF. What if my student loans are already delinquent or in default. How will COVID-related relief programs affect me? Qualifying loans that are at least 31 days delinquent will be automatically granted a forbearance. The Department of Education has also ordered its loan collectors to pause all wage, Social Security, and tax refund garnishment for a period of at least 60 days in response to the national emergency. What if I am struggling with my private student loan payments? Private student loans are not eligible for the federal relief program. Review the terms and condition of your private loans, as you may have the ability to delay, skip, or make interest-only payments for a short period of time if needed. You should also reach out to your private loan servicer to learn if they have taken any specific measures for temporary relief due to the coronavirus outbreak and its repercussions. You may also wish to explore the possibility of refinancing your loans at a lower interest rate. In response to a dramatic rate decrease by the Federal Reserve Board, we are likely to see favorable refinance terms in the private market. Make sure, however, that you read the fine print on any refinance product and understand what you are gaining and losing by signing on the dotted line. Take extra care before refinancing any federal student loans, as federal loans carry significant borrower protections, including these recent relief programs. Are there any new student loan tax incentives included in the relief provisions? Employers may provide student loan repayment assistance up to $5,250 on a tax-free basis from the enactment of the stimulus package on March 27, 2020 until January 1, 2025. Employer loan repayment assistance was previously taxable, and, unless this provision is extended, will become taxable again in 2025. The $5,250 cap applies to both student loan repayment and other employer educational assistance. Check with your employer to learn if they offer loan repayment assistance. While we are living in an uncertain time, student loan relief options are available to borrowers who may be struggling (and even those who are not). Next steps: log in into your account(s) and contact your loan servicer(s). Before making any significant financial moves, however, make sure you utilize the student loan simulator on StudentAid.gov to explore the options that will best meet your short- and long-term financial goals. (Post updated 4/8/2021)