As of the end of 2019, student loan debt reached $1.48 trillion in the US, with approximately 45 million borrowers across the country. Over the course of the COVID-19 pandemic, many Americans have experienced unprecedented financial instability. This means that for 45 million Americans, paying down student loan debt may be harder than ever before.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. While this stimulus package provides a wide array of assistance for families and businesses, it also made some important changes to assist federal student loan borrowers.
In response to these changes, below are answers to a few important questions regarding student loan debt during the current pandemic.
Question #1: Are Interest & Payments Suspended on All Student Loans?
The suspension of payments applies only to student loans that are held by the federal government. Your FFEL (Federal Family Education Loan) lender or school may suspend interest and payments voluntarily, but they are not required to do so.
In regards to federal student loans, your servicer will suspend all interest and payments through December 31, 2020.
The benefits authorized by the CARES Act do not apply to private student loans that are owned by banks, credit unions, schools or other private entities. If you are trying to suspend payments to these institutions, you will need to contact them and find out what your options are.
Question #2: Should I Apply to Suspend My Payments or Interest?
Until December 31, 2020, there will be no interest accrued or payments due for federal student loans. No action is required on your part, as these payments have been stopped automatically.
Question #3: What Should I Do if I’m Behind on Payments?
On March 25, 2020, the Department of Education announced that it would not be withholding federal tax refunds, Social Security payments or garnishing wages from those who have defaulted on their federal student loan payments. Private collection agencies contracted by the government will also put a pause on attempting to contact defaulted borrowers.
Any defaulted federal student loan will not collect interest until December 31, 2020.
Question #4: How Can I Use This to My Advantage?
If your finances and cash flow have not been negatively impacted by the pandemic and resulting economic uncertainty, you have a unique opportunity to get ahead on your student loans. Many federal student loans have interest rates between 5-7.5% per year, meaning that a portion of every payment is going toward paying interest. Until December 31, 2020 any payments made toward your loans will go 100% toward principal, meaning your loans will be paid down faster.
Because payments were automatically paused for all federal student loans, you will need to initiate payments during the deferral period.
As you navigate a “new normal” through the COVID-19 pandemic, it’s likely you’re experiencing a certain level of financial stress. Continuing to make regular payments to your federal student loans can be beneficial in the long-run, but it’s important to know your options have changed. If you’re unsure whether to stop payments or not, get in touch with your Atlanta Financial advisor first. Together, we can make a game plan to keep you moving forward successfully.