Coronavirus and your student loan payments

Even your student loans may be affected by the coronavirus — at least, temporarily.

The federal government passed emergency legislation known as the CARES Act — or the Coronavirus Aid, Relief, and Economic Security Act — to address public health and economic issues due to the coronavirus.

Two major factors

There are two big takeaways from this act in regards to student loans:

1. It suspends all payments and interest on federally held student loans until Sept. 30, 2020.

2. Each month of the suspension will count as a payment for the purpose of a loan forgiveness program.

Note that the suspension does not mean that the federal government is making your student loan payments — you’ll just be free of paying anything for six months without accruing interest or incurring late fees during that period.

The Department of Education also announced earlier in March that it will halt collection actions, wage garnishments, and withholds on federal income tax refunds and Social Security payments due to defaulted student loans.

We’re here to help you figure out how this bill applies to your loans and how it could help you.

What to do about student loans during the pandemic

However the coronavirus may be affecting you, your student loans aren’t going anywhere for now. The relief bill does not include any debt cancellation, except for a provision that forgives debt for the current academic year if you withdrew due to coronavirus-related issues.

Here’s what you need to know about the payment suspension.

What loans does the waiver cover?

The interest waiver covers all loans owned by the U.S. Department of Education, which includes Direct Loans, subsidized and unsubsidized Stafford loans, Parent and Graduate Plus loans, and consolidation loans.

If you have Federal Family Education Loans (FFEL) and Perkins loans held by the federal government, they’re covered, too.

But the vast majority of those loans are commercially held, which makes them ineligible for the benefit, according to student loan attorney Christie Arkovich.

“Before 2010, 80% of those loans were owned by third parties,” she said. “I’ve never seen a FFEL loan owned by the federal government.”

You could consolidate your FFEL or Perkins loans into a direct consolidation loan, which would make it eligible for the payment and interest suspension, but Arkovich advised against that strategy.

That’s because the consolidation process typically takes a couple months — perhaps longer, given the COVID-19 crisis — which means you’ll likely only get a couple months’ reprieve from payments. After the suspension ends, your interest rate might be higher than what you’re currently paying.

And if you’ve been on an income-driven plan, any outstanding interest will capitalize, which would almost certainly negate any savings from the payment suspension, Arkovich said.

Neither private loans nor state-issued ones are included at all in the CARES Act. Your best option if you’re unable to make those payments is to reach out to the lender directly and request financial hardship assistance.

Pro tip: Some states are also getting in on the action: New York state, for instance, is suspending collection of student debt owed to the state. Check with your state attorney’s general website for updates.

How do you know what’s covered and what isn’t?

You can call your loan servicer to confirm the type of loan you have. There are alternative ways to find out what you owe in student loans, including going to studentloans.gov for a list of your federal student loans or speaking to a student loan attorney, particularly if you’re considering consolidation.

It’s a good idea to keep the lenders’ numbers and DOE’s student aid website handy, so you can call back for updates.

How does the waiver affect your monthly payment?

During the six-month period covered in the bill, your payment will be $0, freeing up that money if you’re struggling to pay bills.

If you’re able, you might want to continue to make your regular monthly payments — the amount you pay would first go toward previously accrued interest, and the rest would pay down principal. The interest-free period would allow you to use the money to pay off more of your balance.

Alternatively, if you’re also paying off student loans that aren’t federally held, you could take advantage of the payment suspension and put that money toward loans that are still accruing interest.

What if your loans are already in default?

The DOE halted collections and wage garnishments until September 30, 2020. Additionally, the U.S. Treasury will stop withholding money from defaulted borrowers’ federal income tax refunds, Social Security payments and other federal payments as of March 13, 2020, the first day of the national emergency due to COVID-19.

That also means you should stop receiving pesky phone calls from collection agencies, and the DOE stated it will refund any money that was being withheld as of March 13, 2020.

It’s up to your employer to make the changes to your paycheck, so if yours have been garnished since the March 13 start date, contact your employers’ human resources department.

If you have questions about arrangements you have in regards to defaulted student loans, contact the Department’s Default Resolution Group at (800) 621-3115.

And again, if you are able to keep making payments during the interest waiver period, this could actually be a good chance to put a dent in your student loan balance.

We’re here to help you figure out how this bill applies to your loans and how it could help you.

This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.