Forbes - June 8, 2020
Last month, the U.S. House of Representatives passed the HEROES Act, a $3-trillion stimulus bill, that would include additional relief for those with student loan debt. But it’s unlikely to pass the Senate in its current form. Several Senate Republicans have publicly stated they won’t support the legislation, including Senate Majority Leader Mitch McConnell (R-Ky).
So what could be included in the next stimulus bill for student loan borrowers? And what other options do struggling borrowers have? Student Loan Debt Relief in the HEROES Act
The HEROES Act that passed the House had several provisions that would provide relief for student loan borrowers, including some student loan debt forgiveness (though an amendment restricted who could qualify for loan forgiveness ).
The provisions included:
$10,000 in federal student loan forgiveness for borrowers who are in default, delinquent or have deferred loans due to economic hardship
$10,000 in private student loan forgiveness for “economically distressed” borrowers
An extension of the suspension of payments and interest on government-held federal student loans through September of 2021
But—and this is a big but—there seems to be little chance that these will all be included in any additional stimulus bill passed by the Senate. Sen. McConnell has said lawmakers will likely decide by late June whether to pass “a fourth and final” stimulus bill in response to the coronavirus pandemic and ensuing job losses and financial instability that resulted from the closures of thousands of businesses. But that it will be “narrowly crafted.” He has mentioned providing relief for those who are still unemployed, and that there may be additional assistance for small businesses and for healthcare workers. But it’s unclear what student debt relief might make it in.
That said, there’s still an opportunity to take advantage of the student loan debt relief included in the CARES Act, which was signed into law in late March. And there are other options for student loan borrowers who are struggling to make payments.
Student Loan Debt Relief in the CARES Act
If you have a federal student loan, you likely qualified for some relief provided in the CARES Act. The bill’s provisions generally apply only to Direct Loans and Federal Family Education Loans (FFEL loans) owned by the U.S. Department of Education. Neither Perkins Loans nor private student loans are covered by the bill. Still, the National Consumer Law Center’s Student Loan Borrower’s Assistance Project estimates that about 9 million federal student loan borrowers have at least one loan covered by the bill.
Student loan borrowers who have qualifying loans get a few benefits under the law:
If you’re a qualifying federal student loan borrower, you were automatically placed in forbearance, allowing you to temporarily stop making monthly loan payments (with no harm to your credit). The suspension of payments started in mid-March and will last until September 30, 2020.
If you qualify but chose to continue to make payments, you’ll be charged 0% interest through the end of September. If you can afford to make payments, this is a great opportunity to pay down your principal and save money overall. “Not only will you stay on track towards repayment—you’ll also potentially pay off your loans quicker, as interest isn’t accruing,” says Tim Stobierski, founder of StudentDebtWarriors.com, a resource center for student loan borrowers.
If your federal student loans are in default, the Department of Education will not make collection calls or send letters through September 30. Even more importantly, each month during the collection suspension (through the end of September) will count as a month in which an on-time rehabilitation payment was made–even if you do not make payments.
If you’ve been on an income-driven repayment plan, the suspended payments are considered qualifying payments. And if you’re working toward Public Service Loan Forgiveness, you should also have the time in suspension count toward your 10 years of qualifying payments.
Other Student Loan Debt Relief Options
If you need additional help, or if you don’t qualify for the CARES Act student loan relief, there are other options. These include:
An Income-Driven Repayment Plan
If you have federal student loans, you can qualify for a long-term income-driven repayment plan , irrespective of the CARES provisions. If your income has been negatively affected by the coronavirus pandemic and ensuing economic recession, contact your student loan servicer to re-certify your income. That can substantially lower your federal student loan payments.
Under the income-driven repayment plans available, any remaining loan balance is forgiven if your federal student loans aren’t fully repaid at the end of the repayment period, which is either 20 or 25 years, depending on the plan. If you’re making payments through an income-driven repayment plan and also working toward loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program , though, you may get any remaining loan balance forgiven after just 10 years of qualifying payments.
Pausing private student loan payments
Private student loans were not included in the CARES Act provisions, but some states have since worked with private lenders to provide some student debt relief to borrowers. As of early June, California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, Virginia, Washington, New York and the District of Columbia had all reached agreements with lenders to aid borrowers with private college loans and commercially held FFELP loans.
The agreement calls for lenders and loan servicers to:
Offer borrowers the right to pause payments via forbearance for 90 days. You’ll likely need to call your loan servicer to request forbearance. Be sure to ask that your interest not accrue during this time, so you aren’t stuck paying more after the period ends.
Waive any late-payment fees. While your loan’s in forbearance, you should not have to worry about paying any late fees on missed payments.
Issue no negative account reports to credit bureaus. While in forbearance, the agreement states that loan servicers must report your account in good standing to the credit bureaus. Still, it’s a good idea to check. Fortunately, all three major credit bureaus—Equifax EFX, Experian and TransUnion TRU —are now offering free weekly online credit reports .
Pause debt collection lawsuits for 90 days. That applies to any new lawsuits.
Exploring flexible student loan repayment options
If your student loans are private or aren’t eligible for the relief provided in the CARES Act, you may still be able to negotiate lower payments or even a pause in payments.
If you’ve lost your job or seen your income reduced during this pandemic, call your private student loan servicer to see what flexible student loan repayment options are available. Even if you don’t live in one of the states that’s set up agreements with private lenders and loan servicers, you may still be able to pause your private student loan payments temporarily without incurring late fees or negative consequences to your credit report.
Student loan refinancing
By refinancing your student loans, you could lower the interest rate you pay and save hundreds (or even thousands) on your student debt over time. Interest rates are particularly low right now with variable rates as low as 1.99%, as of June 6, 2020, according to Student Loan Hero , part of LendingTree TREE. To qualify for the best rates, you’ll typically need a FICO credit score in at least the high 600s .
If you’re refinancing private loans, this can be a great chance to lower your monthly payments and the total amount you pay over time. You can also consolidate loans into one payment. If you’re thinking of refinancing federal loans with a private lender, though, keep in mind that your loans will no longer have access to federal programs and protections, including the CARES Act loan relief and forgiveness programs. So it’s important to weigh the pros and cons.
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