As every student with loans probably knows, the Coronavirus Aid, Relief, and Economic Security (CARES) Act that President Trump signed into law on March 27, 2020, provides some assistance for borrowers of federal student loans (private loans may or may not have special treatment depending on the lender). The Act suspends all payments from March 13, 2020 through September 30, 2020. During this period, interest will not accrue and collections and garnishments will not be pursued. Additionally, the missed months of payments will still count toward the 120 payments required for those borrowers working toward public service loan forgiveness. This is great news for about 9 million student loan borrowers.
On August 9, 2020, the President signed an Executive Order to extend student loan relief through the end of the year. More specific information on the changes, if any, will be forthcoming.
But what happens when 2021 rolls around, especially if you’re out of work due to the widespread impact of the coronavirus, lack of work or any other circumstances? There are still options to continue deferring or reducing the payments on your student loans. Ideally, the time to look into these options is now, and not when the relief has expired.
Student Loan Options
For reducing or deferring your student loan payments, here are a few options:
- Refinance at a lower interest rate.
- Consolidate several loans into one loan with a fixed interest rate that is based on the average interest rate of all loans being consolidated.
- Sign up for income-driven repayment.
- Apply for loan forgiveness programs; there are several, including ones available to teachers, nurses, military personnel, and those in public service. You may also qualify for income-driven repayment forgiveness, which allows you to base your payments on your monthly income. After 20 or 25 years (the plans have different time frames), your balance may be forgiven.
If you’re interested in learning more about these options, an excellent resource is the Federal Student Aid website, studentaid.gov. You will also be able to find updates on new legislation related to student loans due to COVID-19, as the administrators update the website frequently.
Finances During COVID-19
We would be remiss if we didn’t also touch upon what to do with the funds you would have used for student loan debt had there been no forbearance. Assuming you have income, whether from working or unemployment, and you have cash remaining after covering your necessities (housing, utilities, food, etc.), here are some financial tips we would recommend:
- Establish, or add to, your emergency fund. As the pandemic has so clearly illustrated, bad things can happen. Aim for at least three months of living expenses; six to twelve months (or even more) is ideal.
- Once you are comfortable with the level of your emergency funds, concentrate on paying down debt, beginning with the highest interest rate balances.
- Add to retirement savings.
- After you’ve taken these steps, you can look at other goals, such as a home improvement or vacation fund, or saving for your children’s education.
No one expected a global pandemic this year and all that has followed, but if it has shown that we need to be ready for the unexpected. We can take the lessons learned from this pandemic to prepare for the next bump in the road.
If you have any questions regarding federal student loans and the relief provided by the CARES Act, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form. For further information regarding COVID-19 assistance programs, please visit our COVID-19 Resources page.