How To Manage Student Loan Payments When Federal Relief Ends

Content provided by LSS Financial Counseling.

Thanks to the CARES Act approved earlier this year, federal student loan borrowers haven’t had to make loan payments or accrued any interest on those loans from March 13 through September 30, 2020. Now the federal government has extended this relief until December 31, 2020. However, unless there are further policy changes, your debt will be waiting for you come January 1, 2021. Take steps now to manage student loan payments so they remain affordable and your accounts are current.

Those steps will depend on your current situation. See which of the following circumstances apply to you.

If you would like to make payments on your loans:
If your finances have not been affected by this current economic downturn, you can still make loan payments even if you’re not required to do so at this time. You will need to contact your loan servicer and let them know you will be making payments between now and December 31, 2020. One hundred percent of your payment will go towards the loan principal, since interest charges won’t be added until the first of the year. You can reduce the principal even further by sending in more than the minimum payment, if it’s affordable for you.

If you decide to extend the pause on your payments:
Relief from repaying your loans right now is particularly welcome if you are unemployed or have reduced income. If you are still experiencing these financial challenges come January 1, 2021, you can request an extended forbearance/deferment on your loans. (Note: there are limits on forbearance/deferments.)

When your servicer notifies you that your payments will restart after January 1, 2021, you can request an administrative forbearance to begin on that date. If you receive this forbearance, interest will start to accrue on your loans at that time. In addition, if you are on a loan forgiveness program, you will not make any progress towards forgiving those loans as long as they are in forbearance.

An alternative to a forbearance is an Income Based Repayment (IBR) plan. An IBR factors your income and family size when determining your payments. That means, those payments could temporarily be as low as $0 per month if you are unemployed. Your repayment term would also be extended, and as long as you are employed full-time by a qualifying employer, you could still make progress towards loan forgiveness.

Visit the studentaid.gov website for more information regarding student loan forgiveness programs.

​​​​If you are delinquent on your loans:
If you were behind on student loan payments for 31 days or more prior to March 13 (when the CARES Act provisions took effect), there will be no collection activities against you through the end of 2020, including wage garnishment and collection calls. You will not have to take any steps to prevent these activities; the Department of Education automatically suspended them.

However, your account will still be delinquent come January 1, 2021. To bring your loans current, contact your servicer and request either a retro-forbearance or deferment, or see if you can consolidate those loans.

If you are in default on your loans:
As previously mentioned, between March 13, 2020 and December 31, 2020, the U.S. Department of Education will not attempt to collect on your loans, and your wages will not be subject to garnishment. Any money the Education Department has received from garnishment between March 13 and December 31 will be refunded. 

If your loans are currently in default and you have not had wages garnished, you can take advantage of the Department of Education’s consolidation options. This will instantly bring your loans current and give you a fresh start. However, this is like your one-time, “get-out-of-jail-free” card. If you default in the future, this option will not be available to you again.

For more information on the consolidation options available to you, call the Education Department’s Default Resolution Group at 1.800.621.3115 (TTY for the deaf or hearing-impaired, 1.877.825.9923).

The options for managing loans that are delinquent or in default can be complicated and confusing. LSS Financial Counseling is also a great resource for determining which option is best for you.  Call us at 888.577.2227 to set up a free student loan counseling session.

If you are rehabilitating defaulted student loans:
Your payments are suspended through December 31, 2020. The months of suspended payments will count towards the months you need to complete the rehabilitation process.

If you have Federal Family Education Loans (FFEL):
Your FFEL loan payments will be suspended and the interest on those loans will not accrue through December 31, 2020 - ONLY if the government still owns your loans. This provision won’t apply to most FFEL borrowers, though, since commercial financial institutions hold most of the loans from this program that is no longer available.

You still have options for relief, however.

Consolidation: You can consolidate these loans into a new loan held by the Department of Education, and you will become eligible for loan payment forbearance immediately. While you will have multiple payment options available, there are some disadvantages:

• Any payments you may have built up toward loan forgiveness will be forfeited.
•  Your schedule for repayment will be extended, so you will be paying off loans over a longer period than before.
• Your loan interest rate will likely increase.
• Any unpaid interest will be added to the total amount you owe.

Deferments: You can also apply for an Economic Hardship or Unemployment Deferment for your FFEL Loan. These options will pause your payments while you address your current hardship. Be aware that your loans will still accrue interest during this time if they are unsubsidized.

Go to the Student Loan Borrower Assistance website to determine if you are eligible for one of these hardship programs and find the necessary forms to apply for either program.

If you have private student loans:
While private student loans do not have the same benefits as their federal counterparts, many private loan servicers have created relief options in response to COVID and the economic downturn. Those options include temporary forbearance on loan payments, waiving of late fees, or a halt on negative reports to the credit bureaus about your account. Contact your loan servicer to determine what relief options are available.

If you do get relief on your private loans, be sure to:

• Get everything in writing.
• Keep all written correspondence.
• Check your credit reports at www.annualcreditreport.com. Missed loan payments can significantly affect your credit score. In the past you were only able to check your credit once a year, but because of the COVID pandemic, you can now check your credit reports once a week. Examine yours at least once a month for errors and dispute any errors you may find.

Other important things to know:

• Public Service Loan Forgiveness (PSLF): All borrowers who are pursuing PSLF do not have to make payments until January 1, 2021. These months of loan forbearance will still count towards your 120 payments needed to qualify for loan forgiveness. However, you still need to work full-time for an eligible organization.
• If you graduated this past spring: You won’t have to make payments until January of 2021. Furthermore, your loan will not accrue interest if your six-month grace period overlaps the loan forbearance period.

Before your repayments begin, find out who your servicer is and how much your first payment will be. If you feel that that payment is unaffordable, you will want to check into an Income Driven Repayment plan or a temporary economic hardship deferment.

LSS Financial Counseling can help:
LSS financial counselors can discuss all your concerns and questions about student loans. Whether your concern is repayment, forbearance, deferment options or something else, contact LSS Financial Counseling to keep your loans in good standing or get them back on track. Set up your free appointment today by calling 888.577.2227.

LSS Financial Counseling has been guiding individuals and families for more than 30 years as they take control of their finances.

As a TopLine Financial Credit Union member, you and your family have access to six (6) FREE private and confidential financial education counseling sessions annually with a certified consumer credit counselor from LSS Financial Counseling. Sessions are available by phone, in-person or online.