Student loan break gets extension
Use the extra time to enact a financial plan
September is traditionally a time for back to school and, even in a time of COVID-19 restrictions, it was to be the month when student loan payments got back on track.
Well, like a lot of things, we’re looking at yet another new game plan. And it’s one that savvy consumers might be able to use to their advantage.
Borrowers across the country began receiving notices in April from their federal student loan servicers about temporary 0% rates and a pause in payments. No payments were due, which theoretically offered some relief to tight budgets as wages were cut and jobs were lost amid the fight against the coronavirus pandemic.
But that deal was set to end Sept. 30, and borrowers would then have had to resume making payments.
But as the health crisis continues, borrowers are now looking at receiving an automatic three-month extension; the loan forbearance program is now set to run until Dec. 31.
Loan servicers are expected to notify borrowers of the extension through the fall. And according to the U.S. Department of Education department, borrowers can expect to see this extension reflected in their accounts over the next several weeks.
The first round of relief came under the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, signed by President Donald Trump on March 27.
The new extension comes under a White House order issued Aug. 8; the
Department of Education followed up Aug. 21 to implement the memorandum.
Not everyone is covered. About 9 million borrowers – those with private student loans, Perkins loans and Federal Family Education Loans not owned by the federal government – were left out, according to the Student Borrower Protection Center, a nonprofit group.
Some efforts continue to try to get more borrowers covered. A coalition of attorneys general has urged the Senate to provide relief for all federal borrowers, including borrowers whose federal loans are owned by private entities.
While the federal government supports or guarantees these loans against default, Michigan Attorney General Dana Nessel’s office noted that “these borrowers are struggling with the pandemic just as other federal student loan borrowers are, but do not have relief options under the CARES Act solely because of the entity that owns their loan.”
If you do qualify for relief now, take a look at your budget and financial situation to craft a plan that can help you down the road.
Someone who continues to bring home a paycheck, for example, might redirect the money that would have been used toward student loan payments.
If you have high cost credit card debt, for example, you could use that money toward paying off old credit card bills through the rest of the year.
If you’d like to continue making student loan payments to pay that debt off quicker, you can continue to pay down student loan debt this year.
“All borrowers with federally held student loans will have their payments automatically suspended until 2021 without penalty,” according to the Education Department.
“Borrowers will continue to have the option to make payments if they so choose. Doing so will allow borrowers to pay off their loans more quickly and at a lower cost.”
Or if you have very limited emergency savings, rebuild what cash you have on the sidelines for emergencies, like the day you might need tires or might have trouble paying the mortgage.
“Save at least half a year’s salary in an emergency fund,” said Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
“You might have a job now, but who knows what will happen in a month or two, especially if there’s a second wave of the pandemic.”
Kantrowitz noted that the average duration of unemployment during the 2008 downturn was five months. Depending
on your skills and experience, it could take as long or longer to find another job in the latest recession.
Take time now to prepare to make your payments in 2021. Be aware of how much you’ll owe each month, and set some money aside for that bill.
If your federal loan payments were set to be automatically deducted from a bank account, Kantrowitz said you may need to sign up again before the loan payments will be due next year.
“This will probably be required because the lender doesn’t know if you still have the same bank account,” Kantrowitz said.
Fortunately, the answer is yes, according to Will Sealy, cofounder and CEO of Summer, a New York-based startup that offers software to help borrowers keep track of their student loans.
The Department of Education has confirmed that the three month extension will count toward programs like income-driven repayment and Public Service Loan Forgiveness. But Sealy cautioned that the borrower must already meet the other program requirements for this to work.
If you’re facing financial problems next year, it’s a good idea to contact the loan servicer to ask about options.
Payment options exist for federal loans, including the Federal Family Education Loans that were not eligible for the payment pause and interest waiver. You might be able to pause payments by tapping into the economic hardship deferment, unemployment deferment and forbearances. But such breaks won’t be automatic.
“If you were already in an incomedriven repayment plan and your income has changed,” Kantrowitz said, “you can ask the loan servicer to recertify your income now instead of waiting until the annual recertification date.”
If you’re having trouble making payments on private student loans, contact the lender. Many private student loan lenders offer 90-day COVID-19 forbearance upon request.
Susan Tompor