Photo by Karolina Grabowska
The coronavirus pandemic of 2020 caused a worldwide economic crisis. Fortunately, in the U.S., students were relieved to discover the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the stimulus package passed by U.S. Congress, offered stimulus package student loan aid.
A second stimulus package is currently being discussed, and could give borrowers even more student debt relief.
As of now, student loan debt is at almost $1.6 trillion. If you’re one of the many students struggling to pay off your debts, you may be wondering what your student loan repayment options are after December 31st and if student loan relief will be extended.
When Does the CARES Act End?
The CARES Act ends on September 30 and it was expected that students would have to start paying back their loans as early as October 1.
The Democrats and Republicans in Congress proposed two plans: the HEROES Act and the HEALS Act.
The HEROES Act calls for suspending interest and payments on federal student loans until September 30, 2021. The HEALS Act calls for eliminating repayment plans except for REPAYE and the Standard 10 year. Payments and interest have to resume on September 30, 2020.
On August 8, 2020, President Donald Trump signed a congressional order and announced that student loan payments will be suspended until December 31st.
Student Loan Repayment
Do you have to pay back your student loans? Not until January 1, 2021. All interest will also freeze. No wage garnishment, collections, or seizure of tax refunds will happen. This includes all federal student loan programs.
Borrowers in default will have their six months of suspended payments count toward the nine months needed for loan rehabilitation. Employers who contribute to student loan repayment can also receive a tax break.
When the CARES Act was signed into law on March 27, student loan payments stopped immediately. In addition, you can request a refund for any payments made between March 13 and December 31, 2020.
What If You Don’t Have a Federal Student Loan?
Unfortunately, the CARES Act doesn’t count toward FFEL loans held by private institutions, private student loans, or the Department of Health student loans. Those with a Federal Family Education Loan Program (FFELP) also won’t receive support; however, these loans discontinued in 2010.
Keep in mind, you can still receive relief. This includes income-based repayment, student debt loan consolidation, and more. We’ll discuss these options in-depth in another section.
How to Get Student Loan Relief After December 31st
Unless an extension is passed, you’ll have to make payments toward your student loan debt. Don’t worry, you still have options — even if you lost your job and are looking for work.
Student Loan Consolidation
Student loan consolidation is similar to refinancing. This is a way to prevent defaulting on your loans or to simply lower your monthly payments. Interest rates are also fixed.
Keep in mind, this may not be the best option for all borrowers. In addition, student loan consolidation doesn’t remove the default off of your credit score.
Student Loan Refinancing
Refinancing your student loans involves creating a new loan with lower costs. This helps you reduce your monthly payments, paying off your debt faster. You create this loan through a private lender. You can do this for free and you can refinance both federal and private loans.
However, you need some qualifications. These include steady income and a credit score of at least 600. If you don’t meet either of these qualifications, you’ll need a cosigner.
Student Loan Forgiveness
Student loan forgiveness is a process where you can have your student loans canceled, forgiven, or discharged. You can qualify for student loan forgiveness based on employment, school closure, or a disability.
Some of the positions held that qualify for student loan forgiveness include teaching and working in the public service. Death and even bankruptcy (in rare cases) may qualify for student loan forgiveness.
Income-Driven Repayment Plans
Income-driven repayment (also called income-based repayment) is a plan that sets monthly rates based on your income and family size. They take a percentage of your discretionary income and separate this percentage into equal monthly payments. Depending on the plan, some have a maximum amount of time to pay off the loan.
Hardship Modifications for Private Student Loans
As stated previously, those who hold private student loans have fewer options than borrowers with federal loans. But you can still work with your lender to reduce or at least modify monthly payments.
These are known as “hardship modifications” and your lender can apply them during times of financial hardships. Keep in mind, it’s ultimately your lender who decides to change your monthly payments.
You should also understand the terms of these hardship modifications. For example, you may receive relief now only to pay higher monthly payments when the modification term ends.
Deferment and Forbearance
If all else fails, you have the option to sign up for deferment and forbearance programs. These programs let you pause payments. As long as there’s economic hardship, you’ll still be a good standing. Depending on the type of loan you have, this period may last for years.
Borrowers with federal student loans usually have more options than borrowers with private loans. In addition, interest will still build unless you have a subsidized federal student loan.
Contact Congress to Extend Student Loan Relief
Borrowers also have the option to contact their congressional elected officials to request a stimulus student loan relief extension. While this may not help your financial situation directly, you do have a right for elected officials to hear your voice.
Click here to find your congressperson.
Get Student Loan Help After December 31st
Because of economic hardships during the COVID-19 pandemic, the CARES Act paused all payment and interest requirements on student loans.
Unfortunately, student loan relief ends on December 31st. In case there’s no extension, borrowers still have options to pay little monthly payments or to not pay at all.
Are you unsure of your best student loan relief options? Click here for a free evaluation.