I just wanted to update everyone on the latest events that have transpired as a result of the Department of Education press release on March 20, 2020. The initial announcement on March 13 did not provide specific details on the student loan interest suspension as announced by the President. Here is what student loan borrowers need to know about managing their debt in light of the recent announcement.
Consider Whether You Need to Apply for Forbearance and Suspend Auto-Payments
Many borrowers have authorized their loan servicing companies to automatically deduct the student loan payment from their bank account on an automatic basis each month. If you need to stop making payments for a while, contact your loan servicing company and they will allow you to temporarily stop making payments through a deferment or forbearance. The Department of Education has directed all loan servicers to automatically grant an administrative forbearance to any borrower requesting payment relief and to any borrower more than 30 days delinquent on the repayment of their loans. This is only available for federal loans, so private loans, Perkins loans, FFEL loans and HRSA loans are not being provided with this option. Since these companies may not react immediately to your request, you can avoid overdraft charges by withdrawing your consent to auto-payments. In most cases, this can be done online.
Who is Your Loan Servicing Company?
You can log on to https://studentaid.gov to determine who is servicing your loan.
Should You Apply for Income Driven Repayment Plans or Request Recalculation of Your Payment?
If you are not currently in an income driven repayment plan, it may make sense to apply for an income driven repayment plan to obtain a lower monthly payment. If you are currently in an income driven repayment plan, instead of asking for a deferment or forbearance, you may want to simply have your payment re-calculated based upon your lower income. This can be done at any time, and you do not have to wait until your annual re-certification period. This may be a better option for people seeking loan forgiveness under an income driven repayment plan, or those who are trying to obtain forgiveness under the Public Service Loan Forgiveness program. This way you are still making payments, and these will count towards loan forgiveness. If you chose deferment or forbearance, you are losing time that could have counted towards obtaining loan forgiveness.
What Does Student Loan Interest Waiver Mean For Me?
The President announced on March 13, 2020, that interest on federal loans would be effective immediately and would be suspended indefinitely. The press release indicated that this is expected to be in place for at least 60 days and may be extended further. No application is expected to be required to take advantage of this waiver. This just means that additional interest will not accrue during this difficult time, but your payments would remain the same. In many situations, any payments made during this interest-free period will be applied to the principal balance. For borrowers with accumulated interest from prior periods, the payments will first be applied to existing accrued interest, then to any fees, and then to the principal.
If you would like to set up a time for a student loan consultation I would be happy to help. Please contact me.
About the Author
Patti Hughes is a Chicago Fee-Only Financial Planner. Lake Life Wealth Advisory Group provides comprehensive and objective financial planning, retirement planning, and investment management to help clients organize, grow and protect their assets through life’s transitions. She is a fiduciary, and does not sell products or earn commissions, so she truly acts in the best interests of her clients.