From Ash Cash, personal finance expert, speaker and bestselling author.*
It is without a doubt that the Coronavirus pandemic is having and will continue to have an effect on the economy and our pockets. If you are one of the millions of people who have student loan debt, then there is good news coming out of this situation.
While we know each individual will have different financial needs,student loan borrowers who are planning their finances around the uncertainty of the Coronavirus can take advantage of some new benefits.
A new federal law called the CARES Act, which stands for the Coronavirus Aid Relief and Economic Securities Act has provided an automatic suspension of principal and interest payments on federally held student loans, until September 30, 2020. This suspension will also count towards any student loan forgiveness program, so there won't be a lapse there.
There have been many questions surrounding how these suspensions will come into effect, so here is everything you need to know about your student loans and the (CARES) Act:
The Application Process
You will not need to apply to suspend your payments of federal student loan, your federal student loan servicer will suspend all payments without any action necessary from you. You don't need to contact them or fill out any special application. If you have a federal student loan. Then the suspension will happen automatically. This does not apply to your private student loans. This is only for government issued loans. Keep in mind that there are some federal loans that are owned by commercial lenders, so these loans are not eligible at this time.
Interest Rates and How They Will Be Affected
As far as interest payments go, interest will not accrue on your federal student loans, while your payments are suspended. For your other loans that do not qualify for suspension, interest will continue to accrue.
The Cost of Suspending Your Loans
Unfortunately, during times of crisis, there are many people out trying to scam you. Please be advised that there is no fee, nor will there ever be a fee to suspend your payments. If you are contacted by someone who is asking you to pay a fee, then this is 100%, a scam. Again, there is no action required by you for you to get these payments suspended. If you are contacted by someone please report it to the FTC’s complaint assistant so that they can be aware, and potentially stop these scam artists.
What If Your Loans Don’t Qualify for Suspension?
For those who have federal loans that do not qualify for the suspension or those who have private loans and your finances have been affected negatively by the Coronavirus pandemic, it is important that you reach out to your lender as soon as possible. Most lenders offer income driven repayment plans that you can take advantage of or you can look into getting a forbearance or deferment while you sort out your finances. You should contact your servicer to find out what options are available to you. If you do not know who your federal loan servicer is, please go to the Department of Education’s website where you can look it up.Everyone is feeling the impact of the Coronavirus so most private lenders will have some type of option to potentially help reduce your payments.
Other Consideration You Should Think About:
If you are already enrolled in an income driven repayment plan, but can no longer afford your payments, then you should contact your servicer immediately to report a change in your income and recalculate your monthly payments.
- If you are currently part of the public service loan forgiveness program, even though your payments are suspended, those months will count towards your program.
- Please be advised that the Department of Education has stopped the collection of defaulted federal federally owned student loans, including any garnishment of wages, the offset of tax refunds and Social Security benefits. There is nothing you need to do for your federally owned loans. This will take effect automatically. For the other loans that you have that do not qualify for suspension, you should contact your servicer as soon as possible to see what options are available.
- If your income has not been affected by the Coronavirus pandemic and you were already making monthly Student Loan payments then I would suggest to save the monthly payments that you would’ve made in a savings account to give you extra cushion during these times. If your income gratefully stays the same then use this money as a jump start on investing, buying an income producing assets or starting a business or side hustle.
*The opinions/views expressed by Ash Cash are not considered opinions/views of BMTX, Inc., a wholly owned subsidiary of BM Technologies, Inc. BMTX is not a financial advisor and individuals are urged to obtain and consult their own financial advisors.