President Biden to extend pause on student loan payments
In one of his first official acts, President Joe Biden called on the US Department of Education to extend his break on collecting payments on federal student loans until September. Biden framed the break as a financial lifeline for borrowers who lost income during the coronavirus outbreak.
“The pandemic has only worsened the economic hardship of millions of Americans with student debt,” the Biden administration said in a statement on Wednesday.
The education department quickly agreed. This decision only affects the $ 1.5 trillion in outstanding federal student loans. Student loans issued by private lenders are not part of the initiative.
If you are facing financial difficulties, take advantage of the break from student loan payments. If you have credit card debt, for example, it may be a good idea to redirect your student loan payments to credit card debt in retirement.
But if you have room in your budget, take this opportunity to reduce your student loan debt, says Greg McBride, CFA, chief financial analyst at Bankrate.
“If you’re lucky enough to be able to continue making payments, now is a great time to move forward on paying off the balance,” says McBride. “With no accrued interest, every dollar you can pay will go toward reducing your balance.”
Federal help came quickly
The CARES (Coronavirus Aid, Relief, and Economic Security) law, enacted in March, allows borrowers to suspend payments on federal student loans for six months, until September 30, 2020, and automatically waive interest. In another nod to the tough job market, the Education Department has suspended collection attempts and wage garnishments, Social Security offsets and tax refund foreclosures against borrowers in default of their federal student loans.
In August, Then-President Donald Trump issued an executive order extend many protections for student loan borrowers. Until December 31, 2020, federal student loan payments continued to be suspended, collections were suspended, and interest was waived.
Federal student loans
While details of the latest expansion were sparse on Wednesday, here’s how the payment hiatus worked: The U.S. Department of Education stopped requiring payments, and loans stopped earning interest.
For more information, see the coronavirus information page on the Federal Student Aid website.
Private student loans
Private student loansFederal Family Education Loans Program (FFEL) loans held by commercial lenders and Perkins loans held by schools were not eligible for these benefits. If you have a private student loan, your payments and interest will not be automatically canceled. You will need to continue to make your payments on time or contact your loan officer for options in case of difficulty.
Many private lenders have programs in place to help borrowers affected by the COVID-19 crisis. These programs may include temporary forbearance, deferral, or adjusted repayment plans.
How To Find Loan Relief For Private Student Loans
Help for federal student loan borrowers is automatic, so you won’t need to contact your duty officer to defer payments and waive interest unless you have questions. But each lender and private loan manager offers different relief options. Here’s how to ask for help:
- Call your loan officer. When you call or email your loan officer, explain your financial situation and how you have been hurt by this crisis. For example, you or your partner may have been laid off or on leave, or you may have concerns about your future ability to repay your student loan. Let your lender know when you expect to be able to resume loan payments.
- Find out about assistance programs. Your options will depend on the service agent and your individual situation. For example, your loan manager may offer to suspend payments for a few months, temporarily lower your interest rate, or offer interest-only payments. Some officers deal with each situation on a case-by-case basis.
- To ask questions. Before agreeing to start the program, confirm the exact conditions, such as the fees involved, the duration of the relief and whether interest accrues. You also need to know if this accrued interest “capitalizes”, which means it is added to the outstanding principal balance. Create a plan for resuming payments at the end of the forbearance period.
- Enroll in your loan manager’s program. Get the details in writing and go through the process to enroll in your loan manager’s program. Make sure you receive confirmation of your registration.
- Consider refinancing. As lower interest rates, it becomes cheaper refinance private student loans. Shop around for the best rate if you are considering this move. Refinancing can save you a lot of money if you can reduce your current interest rate by one or two percentage points. It can also help if the new lender offers more flexible hardship options than your current lender.
Keep in mind that joining plans that suspend or reduce payments ultimately extends the term of the loan, costing you more interest overall. If you can afford to continue making payments as planned, it may be in your best interest to do so.
Also be careful when refinancing federal student loans in private loans. Wednesday’s headline was just the latest reminder that federal loans come on more generous terms than those given by private lenders.