President Trump has declared an State of Emergency to combat the coronavirus pandemic in the United States. For borrowers with student loans, this can be a challenging time. It will only get worse if there is a nationwide quarantine or even a lock-down.
With all of the shutdowns and closures, having a stable income to pay your student loans can be a challenge. Plus, there is a lot of misinformation about what is and isn't applicable for student loan borrowers.
Let's break down what the Emergency Declaration and what it means for your student loans, as well as what will happen if we move to a full quarantine or a government lock-down.
Plus, on March 27, Congress also passed the CARES Act (i.e. the stimulus bill) which provides for more relief for student loan borrowers.
Update: Betsy Devos extended the continuing the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until January 31, 2021.
Note: The latest stimulus bill does NOT include an extension of the Covid-19 forbearance.
Pause Of Student Loan Payments
Update: Education Secretary Betsy Devos extended the pause of student loan payments and kept interest at 0% until January 31, 2021. This memorandum extends all CARES Act benefits. Read the memo here.
This is in addition to the CARES Act, which required the Department of Education to pause student loan payments, principal, and interest, without penalty to the borrower for all federally owned loans. This is automatic - borrowers do not have to request it.
That's a huge benefit for student loan borrowers. No payments for roughly 6 months!
Note: Interest will not capitalize during this time as well.
If you are setup for auto-debit, the ACH payment will be turned off on April 10. If you have a payment due before then, you need to manually stop it. Also, if you've already had a payment go through and you need the money, you can call your loan servicer and ask for a refund of that payment.
Another benefit is that if you're on-track for Public Service Loan Forgiveness, these 6 months of deferred payments do count for PSLF! That's awesome.
It's important to note that this only applies to borrowers with loans held by the Department of Education. This includes all Direct Loans, and Federally-held Perkins loans and FFEL Loans. The easiest way to tell if you have Federally-held Perkins or FFEL loans is to simply login into your loan servicer's website - you'll see your loan payment $0 and interest rate 0% if they are approved loans for this.
Non-Federally Held Perkins Loans
If you have a non-Federally held Perkins Loan, your loan servicer is allowed to grant you a three month forbearance if you cannot pay due to a COVID-19 related issue. You can ask for this simply by calling.
Beyond three months, you will need to submit documentation related to your forbearance.
This time will count towards your three year forbearance limit. Interest will also accrue during this forbearance.
Non-Federally Held FFEL Loans
An update on April 4, 2020 allows non-Federal FFEL holders the *option* to follow Federal guidance on suspending payments. However, as of this writing, we don't know of any FFEL loan servicers that are offering this.
Help For Delinquent Borrowers
The Department of Education also announced an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, 2020, or who becomes more than 31 days delinquent, essentially giving borrowers a safety net during the national emergency.
If you're in default, now's the best time to get out of student loan default.
Stopping Collections and Tax Offsets
The Department of Education announced on March 25 that they will be suspending collection activity on student loans - including garnishments, tax offsets, Social Security offsets, and collection activity like phone calls.
If your tax refund happened after the emergency declaration, you will get a refund. If your garnishment happened before the emergency declaration on March 13, it doesn't appear you'll get a refund.
The suspension of collection activities will last until January 31, 2021 right now.
Non-Federally Held Perkins Loans
The Department of Education told Perkins loan collection agencies to cease collection activity until January 31, 2021. This bring the policy in-line with Federally-held loans.
Non-Federally Held FFEL Loans
The Department of Education told FFEL loan collection agencies to cease collection activity until January 31, 2021. This bring the policy in-line with Federally-held loans.
Income-Driven Plan Recertification
Another benefit that is happening right now is that if you had an income-driven plan certification due anytime between March 13 and January 31, 2021, your deadline for recertification will automatically be extended by 6 months.
However, you should strongly consider making a choice before the "pause" ends if you're not already on an income-driven repayment plan.
Options If You've Lost Income Due To Coronavirus And Closures or Quarantine and Lock-Down
However, there are options for help with your monthly student loan payments if you've lost income or lost your job due to the coronavirus and related closures due to a potential government quarantine and lock-down.
Right now, payments are paused for 6 months, but that 6 months will end and you'll need to make a plan.
1. Get On An Income-Driven Repayment Plan
The first (and likely best) approach is to get on an income-driven repayment plan before the end of the 6 month deferment period.
The reason that this is the best approach is simple. If your income is low or $0, your monthly payment under these plans will also be $0 per month. Since your monthly repayment is tied to your income, this can give you the flexibility to not be burdened by student loan payments while you deal with your income loss.
It's important that you certify your income based on the "alternative" method, and you would send in a letter that says you lost your job, and currently have no income, or only unemployment income.
You can apply for an income-driven repayment plan by calling your lender or going online to StudentAid.gov.
Who Should Use This Approach: Most borrowers, especially those who are going for Public Service Loan Forgiveness.
2. Unemployment Deferment
A lesser option, but still viable - especially with the waiver of interest - is to ask for an unemployment deferment. You can get an unemployment deferment for up to 36 months, but you must re-certify your unemployment status every six months.
This can be helpful if you're still unemployed at the end of the 6 month period of deferred payments.
You also have responsibilities under this deferment. You must be diligently seeking but unable to find full-time employment in any field or at any salary or responsibility level even if you are not eligible for unemployment benefits (or if your eligibility expired). You must also be registered with a public or private employment agency if there is one within 50 miles of your permanent or temporary address.
Finally, if you are requesting an extension of your current unemployment deferment, and you are not providing documentation of your eligibility for unemployment benefits, you must certify that you have made at least 6 diligent attempts to find employment on the most recent 6 months.
It's important to note that interest will still accrue while your loans are in deferment, in general. But currently, student loan interest is waived for the duration of the Emergency Declaration.
When you combine the Wavier of Student Loan Interest (discussed below), this may be a good move, but it does have drawbacks. If you're going for Public Service Loan Forgiveness (PSLF), you must be making eligible payments. If you use this deferment, this period won't count towards PSLF. However, if you go on an income-driven repayment plan, even those $0 payments will count towards PSLF.
Who Should Use This Approach: Borrowers who need short term relief and aren't eligible for PSLF.
3. Forbearance
Finally, you can always request a forbearance. This should be a last resort, and doesn't make sense for most borrowers. However, it's the easy way to stop payments immediately.
There is some financial planning benefits that can be gained from a hardship forbearance right now, but use with extreme caution and special planning.
If you have federal loans, interest won't accrue during the State of Emergency. However, non-federally held loans will still accrue interest.
Waiver Of Student Loan Interest
As part of the Emergency Declaration, Trump waived student loan interest for the duration of the proclamation. As of today, the waiver will last until January 31, 2021. That's okay relief for borrowers, but nothing amazing. It's also confusing.
Here's why it's confusing. The waiver applies as follows:
- Loans owned by the federal government
- For the duration of the declared emergency
Here's where it get's tricky. Loans owned by the federal government is vague for most borrowers - and many don't know who owns their loans. The following loans are owned by the federal government:
- All Direct Student Loans (basically all loans issued since 2010)
- Some Perkins Loans
- Some FFEL Loans
The "some" Perkins Loans and FFEL Loans is challenging because in the Great Recession, the Department of Education purchased some loans back from private lenders. These loans that were purchased qualify, but most will not (since they are held by private banks).
So, how do you tell? You need to look on your StudentAid NSLDS File, or use this guide to Find Out Who Owns Your Student Loans. All lenders have updated their online portals at this point. If your loan is 0%, you have a Federal loan. If it doesn't say that, you don't have a Federal loan.
Finally, it may take your loan servicer about a week to process this request from the President. However, the Department of Education has said that it will be retroactive and take effect March 13, 2020, regardless of when they get it implemented in their systems.
Potential "Hacks" To Leverage This For Debt Pay-Off
This waiver of student loan payments does allow for some interesting financial planning aspects for paying off your debt faster. Since your student loan payment is waived, you can do the following:
Hacking The Debt Snowball
If you are running a debt snowball method to pay off your loans, you might consider throwing more at your larger loans in the short term, since you'll be able to make significantly more progress due to not having the interest on your payment. That could be a huge win for borrowers who are diligent about paying extra.
Hacking The Payment Freeze
The more interesting one is taking that extra cash you were using for the monthly payment to save, invest, or eliminate other debts.
It could be especially helpful to take that extra and pay it towards private loans, who (as of now) aren't offering many special benefits to borrowers.
This is risky, because this is also likely the start of a recession, higher job losses, and more. But this could be an. opportunity to beef up an emergency fund, eliminate credit card debt, or even invest to max out an IRA.
Private Student Loans
As of now, here are the private student loan lenders offering help:
Ascent: Ascent student loans is offering a Natural Disaster/Declared Emergency forbearance that allows you to postpone payments on your Ascent loans for up to 3 months in the event a natural disaster, local or national emergency, or military mobilization is declared by the appropriate governing agency. Simply call your loan servicer and ask for it.
Citizens Bank: For borrowers in repayment who are impacted by coronavirus they are offering a special three-month forbearance that will not count against their lifetime forbearance limits.
College Ave: College Ave may offer an extension of the grace period for up to an additional six months following separation from school, and up to 12 months of hardship forbearance over the life of the loan. When needed, forbearance is usually applied in 3- or 6-month increments, before re-evaluating with the borrower to determine on-going need. College Ave also offers deferments for members of the U.S. Armed Forces and National Guard who are called to active duty for more than 30 days, and natural disaster forbearance for customers affected by federal disasters, as determined by FEMA.
CommonBond: CommonBond offers up to 24 months of forbearance for student loan borrowers. They also offer a natural disaster forbearance that will last as long as the natural disaster.
Discover: Discover is the first private student loan lender that is offering borrowers the option to skip two months of payments interest-free. You must contact Discover Student Loans and ask for Discover’s Skip-A-Pay option, and you can defer your loan payments for up to two months - interest-free.
Earnest: Earnest offers borrowers the option to skip one payment every 12 months, with prior approval. Earnest also offers a forbearance option and a rate reduction program. The rate reduction program provides an interest rate reduction for 6-months, which lowers the payment.
ELFI: ELFI released the following statement: At ELFI, the safety and well-being of our customers and employees is what matters most. We're actively monitoring for the latest information on the Coronavirus (COVID-19) outbreak. Our online application process remains open and the ELFI Customer Care Center is open and serving our customers. If any new updates occur, we will post them to this page.
Navient: Navient is currently offering up to 3 months of suspending payments with no impact to the borrowers credit score if you qualify. You must call them and mention that the coronavirus has impacted your earnings.
PNC Bank: Borrowers impacted by coronavirus should call 1-888-762-2265. “We will continue to monitor the situation to determine potential extension or expansion of available assistance, and we will continue to communicate these decisions with you,” a statement on their website says.
Sallie Mae: A spokesman for Sallie Mae said that customers impacted by coronavirus should contact them at 1-800-472-5543 to discuss assistance options available. They are currently offering up to 3 months of suspending payments with no impact to the borrowers credit score if you qualify.
Wells Fargo: Wells Fargo offers various options if you are having trouble making payments – a loan modification program, which temporarily or permanently lowers payments, short-term payment relief for two months, or a forbearance. Call 1-800-658-3567 for more information.
Tax-Free Employer Student Loan Repayment Assistance
Another small provision of the CARES Act was to allow up to $5,250 in employer student loan repayment assistance to be tax-free through 2025.
Note: This was extended until 2025 through the Stimulus Bill on December 21, 2020/
We cover this in depth here: CARES Act Tax-Free Student Loan Repayment Assistance.
Issues For Borrowers Still In-School
One final unexpected issue has the potential to arise for borrowers who are still in school. Specifically, some schools may simply end the school year right now - in March or April.
If this happens, your "end date" gets reported to your student loan servicer, who then implements a 6-month grace period for your student loans.
This normally wouldn’t be an issue, as the grace period on student loans is six months, so assuming you enroll in the fall, you'd never enter repayment.
But, if you get a March out of school date, instead of your first payment being due in November, it could be due in September.
Something to think about and assess as the situation progresses.
Current Proposal: The HEROES Act
The HEROS Act passed the House of Representatives on Friday, May 15, 2020, and is now being debated in the Senate. It's not law yet (and likely will see a lot of revisions, but here are the current proposals for student loan forgiveness.
For qualifying borrowers, you can get:
- Up to $10,000 in Federal student loan forgiveness
- Up to $10,000 in private student loan forgiveness
Furthermore, for all other borrowers, the CARES Act provisions (listed above), would apply until September 2021 - an entire extra year. It would also officially extend to FFEL Loans and Perkins Loans.
To be a qualifying borrower for loan forgiveness, you must have met the following requirements as of March 12, 2020:
- Your student loan was delinquent or in default
- You were in a economic hardship deferment or forbearance
- You were on an income-driven repayment plan with a monthly payment of $0
So, while the forgivness aspect is very limited, the ability to have no interest and no payments for an entire extra year will still help many borrowers.
Final Thoughts
This information is evolving as the situation around the coronavirus, quarantines, and potential lock-downs changes. We will try to keep this page as updated as possible.
Keep in mind that your loan servicers are also working hard to keep updated, but system changes and information dissemination take time.
Feel free to ask a question below and we will do our best to answer or find the right answer.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.