Planning matters

A Bright Spot for Student Loans (Finally)

On March 27, the President signed the landmark Coronavirus Aid, Relief, and Security (CARES) Act, the largest stimulus bill in the history of the country, into law. Among the hundreds of pages of legislation lies Section 3513, which covers the suspension of Federal student loan payments and zero percent interest through September 30. This will undoubtedly bring some relief to the tens of millions of Americans, particularly millennials, burdened by onerous monthly student loan payments, but how will it impact your specific situation? Or perhaps your kids or grandchildren?

Want to determine if your loan is eligible for suspension without interest accrual? If it’s owned by the Department of Education then you’re covered. This includes all borrowers of Direct Student Loans and Federal Family Education Loans (FFEL). Easily check this by logging into your loan servicer’s website and seeing if your interest rate was set to zero. There should also be information on their website indicating what actions they have taken and what resources they have for borrowers affected by COVID-19. Nelnet, one of the largest federal student loan servicers, has updated their website with the following banner.

Modified loan repayment and forgiveness plans have also been affected by the CARES Act. Borrowers using programs where federal loans are forgiven after working in the public sector (such as PSLF and the Teacher Loan Forgiveness Program), will have the forbearance period count as service time without payments having to be made. If this applies to you, we strongly suggest monitoring your loans to ensure your loans were set to 0% interest and were correctly credited for this service time. Borrowers on Income-Driven Repayment (IDR) plans also have their federal loans suspended through September at 0% interest, freeing up cash for more pressing needs during this difficult time. Alternatively, if your income has dropped suddenly during the pandemic, consider applying for the IDR program to potentially allow yourself more flexibility (i.e. lower payments) when the forbearance period ends. (Note: IDR program options vary based on your situation and goals. Learn more here and contact your financial planner for additional guidance.)

The key word in the student loan suspension program is “federal”. The vast majority of student loans (92% as of 2019) are held by the US Department of Education, making them eligible for payment suspension. However, there remains more than 124 billion dollars in private education loans, and if you find yourself in that camp you are ineligible for the program. As previously mentioned, other loans that don’t qualify are commercially-held FFEL and Perkins loans owned by your college or university. Many private loan servicers are offering various forms of relief to borrowers, so you should explore their website and give them a call if this situation applies to you.

If you or a family member are struggling with how to navigate the already difficult student loan system consider starting at the Federal Student Aid website here, which has a detailed Q&A that covers all things coronavirus, including its effect on FAFSA and Federal Work Study programs in addition to student loans. If you’re wondering how this temporary change to student loans impacts your larger financial picture, reach out to our financial planners today.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

 

Written By Zach Reuter