The CARES Act (“Coronavirus Aid, Relief, and Economic Security Act“) was intended to provide limited student loan relief during the COVID-19 crisis. We recommend taking full advantage of the benefits on your federal loans which are eligible—meaning federal student loans owned by the U.S. Department of Education (ED-owned loans)—for the zero percent interest rate, and payment postponement. The CARES Act benefits were set to expire on Sept. 30, 2020, however the President issued an extension, then followed by an extension from the U.S. Secretary of Education, then followed by President Bident. The extended student loan benefits will continue to apply the eligible loans until Sept. 30, 2021. There are many questions regarding the extension. For example, how will the additional time count towards public service loan forgiveness, income-driven repayment, as well as collections on loans in default. We are holding tight until we get the official word on how it will be implemented.
*For federal student loans not owned by ED. Some student loan lenders holding loans which are not eligible for relief under the CARES Act have extended relief options to help borrowers who are struggling during the pandemic. Lenders may even seek to extend certain benefits until the end of the year. To determine what type of relief benefits are available to you, contact your student loan servicer.
At the start of the CARES Act forbearance and cessation of interest on ED-owned loans, there was a lot of information about why this relief was necessary. For some, it was completely necessary because of illness, loss of income, and other struggles faced. For others, it was an added benefit that could be used to help pay down outstanding debts.
This is the perfect opportunity reevaluate or create a repayment strategy. You may be tempted to just go back to your old repayment plan. But it’s always best to really figure out what your repayment goals are, and develop both short-term and long-term strategies to succeed.
There is no one-size fits all answer to student loan repayment. The strategy you’ll want to adopt depends on a number of factors. First determine your short-term and long-term repayment goals.
Goal | Strategy |
---|---|
Pay off debt quickly | Consider: |
Save money on student loan repayment | Consider:
|
Manage monthly payments within your budget | Consider:
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Manage financial hardship | Consider:
|
Qualify for student loan forgiveness | Consider: |
After you’ve identified your goals, it’s time to make them happen. Just because you may not be at a place to achieve your long-term goal (which is most likely, get rid of the debt quickly), it doesn’t mean you can’t take steps to help you get there. As many are struggling with getting used to the new normal, it could take a bit of time. Jot down your goals, and a path to help you get there—that step alone can be extremely informative and motivating.
Looking into student loan refinance during this pandemic isn’t the worst idea. Of course you should take full advantage of your repayment benefits under COVID, as the temporary benefit of a zero percent interest rate is unbeatable on a loan—but this temporary benefit**.
**Benefits offered under the CARES Act can be extended based on an act of Congress or Presidential Executive Order. An executive action recently extended some of these benefits through Dec. 31, 2020. In addition to the President extension, the U.S. Secretary of Education issued an extension of some of these benefits through Jan. 31, 2021. The latest extension has come from President Biden through Sept. 30, 2021.
Why consider refinance? Well, student loan refinance gives you an opportunity to combine one or more student loans (including federal and/or private) together, as well as qualify for a competitive marketplace interest rate on your new loan. Due to the current state of affairs, many private student loan refinance lenders are offering particularly low interest rates.
It is worth noting, if you refinance a federal loan with a private lender, you will lose your federal benefits on those student loans. For some, like those working towards Public Service Loan Forgiveness, refinancing with a private lender may not be the best choice for you. For others, if you’re not working towards forgiveness and are not reliant on the federal benefits of your loan, you might prefer repaying your loan faster with a lower interest rate. Reducing your interest rate over the life of your loan can result in substantial savings.
Some private student loan refinance lenders are offering rates starting at 1.99%** APR for variable, and 2.88%** APR for fixed. In contrast, federal student loans disbursed in the 2019-2020 award years had fixed interest rates ranging from 4.53% to 7.08%.
**Rates as of July 30, 2020
How does interest affect your monthly payments and the total amount you will repay? Here’s an example to demonstrate the impact.
Original Loan | Refinance Loan | Difference | |
---|---|---|---|
Interest Rate | 4.53% fixed | 2.5% fixed | 2.03% |
Monthly Payment | $207.57 | $188.54 | $19.03 |
Total Cost of Loan | $24,907.94 | $22,624.78 | $2,283.16 |
Total Interest Paid | $4,907.94 | $2,624.78 | $2,283.16 |
Examples are for demonstrative purposes only. Other factors, such as loan fees, capitalized interest, and other costs potentially affecting a loan are not considered.
Once you’ve determined student loan refinancing is right for you, you’ll need to qualify for a private student loan refinance with a private lender. If you’ve experienced job loss, or have struggled keeping up with bills, you may need to get your career and finances back on track before you can qualify. Applying with a creditworthy cosigner will help increase your chances of approval.
This can be a difficult time for those who have faced job losses, or inability to work due to the coronavirus pandemic. If you are in this situation, you are not alone. Here are some steps you can take before your loans enter repayment.
Any answer to this is pure speculation. The first law, the CARES Act, helped borrowers with federally-held loans, but loan forgiveness was not included. However it did include some benefits if you were seeking forgiveness through an income-driven repayment plan or PSLF. If you were in an income-driven repayment plan, or working towards PSLF and continued to meet all eligibility requirements, time in the administrative forbearance offered under the CARES Act likely counted as eligible monthly payments toward each respective forgiveness opportunity.
Currently there are talks about subsequent stimulus packages, and from what we’ve seen, they don’t address loan forgiveness. In all honesty, the discussion of student loan forgiveness has been around for over a decade now without much traction for forgiveness without a trade for employment service.
The best advice we can give you is to find a student loan repayment option that works best for you and your situation.
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