Like many people, I have student loans. A bunch of them. And a question that has been circulating amongst my friends and clients has been whether we have to continue paying our student loans during the coronavirus pandemic.
There is a trove of knowledge available on https://studentaid.gov/announcements-events/coronavirus, and I recommend you look there for information, but I will sum up what I know.
0% Interest Rates
From March 13, 2020, until September 30, 2020, the interest rates on federal student loans will be 0%. However, your loan may not be a “federal student loan.” Private student loans are not eligible, and I have not heard whether private lenders are offering similar reductions in their interest rates. You can contact your loan provider to see if they are federal.
My loans happen to be federal, and 3 out of the 4 companies I pay have reached out to me about the interest rate reduction. My providers are automatically reducing the interest rate to 0% without any involvement on my part, but I have heard that other providers require borrowers to opt into the reduction (I don’t have a good source on this information so it may be wrong, sorry).
If you continue to make payments during the period, your payments will be directly applied to the principal balance on the loan.
I have read that if you apply for a consolidated loan, your interest rate will be 0%. However, that rate can and will increase once the period has ended. Pay close attention to the interest rate on a consolidated loan. It is almost always higher than the original rates unless you shorten the repayment period.
If your loan enters forbearance, you will not be required to make payments until September 30, 2020. Normally, during a forbearance the interest would continue to accrue, but since interest rates are 0%, there will be no interest.
This is an administrative forbearance, and it will have no impact on your loan forgiveness programs or income-driven repayment plans. Of course, you should check the fine print with your provider to ensure that you are in line with your individual requirements.
I have had one provider contact me and suspend payments without me having to do anything. My other providers have offered to allow me to opt into a forbearance. It seems very straightforward to opt into the forbearance. I have entered forbearance previously when I started my firm, and this appears to be much easier because they are not asking any questions about why a forbearance is necessary.
There is one other fun fact about loan payments during this period: you can ask for a refund on any payments you made during the forbearance period, even if you did not opt into the forbearance. If I continue to make payments for now because I am able to work from home, but then in a month my business starts waning, I can ask for whatever payments I made for April to be refunded. That’s a pretty nice offer.
However, I have no idea how requesting refunds works or how quickly refunds will arrive in your account so beware.
What should you do with your loans?
This is a deeply personal question. Some of my loans have automatically entered forbearance, and some require me to opt in. My business is still operating, though we are slowing down, so I can conceivably continue to make payments for now. That may change in the near future. Some businesses have not been as lucky. If you’re out of work or your business is struggling, I think entering a forbearance is a smart move that could free up a fair amount of money for your family.
At the end of the day, you have to do what’s right for you. Realistically, other than a few forms, there isn’t much required to enter a forbearance so it probably makes sense to stop making payments, at least for most people.