Let’s get right to the point. We’re all at a place of flux, as are our finances. The main question, what do to with student loans now that there are things being suggested, ordered, and such. Let’s clear the clutter and state exactly what is going on as of today – March 23, 2020.
Federal Loans Only
Any changes I mention below are for Federal loans only. Private lenders can continue to do as they see fit.
Lower Interest Rates
Not so fast. This only applies to NEW school loans such as Staffords, Perkins, or PLUS loans. It does NOT apply to new consolidation loans. The interest rate on consolidation loans is the weighted average of the loans being consolidated. Sorry, this new lower interest rate doesn’t help any of us already in the pool.
This only applies to loans held by the Department of Education (USED). That means Direct Loans or certain FFEL and Perkins loans held by USED. For the majority of FFEL loans, it’s discretionary. “Direct Loans ” means you borrowed directly from USED. “FFEL” means you borrowed from anyone other than USED, such as a bank, credit union, or guarantee agency (VSAC, Navient, Great Lakes, Wells Fargo, etc.). If you consolidated your loans at any time after July 2010, it is a Direct Loan.
This occurs automatically.
No Payments for at Least 60 Days
Once again, this is only for Direct Loans are other types held by USED.
Also, it’s not automatic. You need to contact your servicer to request the 60-day forbearance. Good luck with that since everyone is on a skeleton crew. It might be better to go to your servicer’s website to see if they’ve created an automated system to request this.
Actually, let me step back. It IS automatic if you’re more than a month behind. So, if you’ve already skipped a payment or more, the 60-day forbearance is automatic. This applies if you’re only a few months late. If you’re in default, you get no help.
One good thing is this forbearance does NOT capitalize interest upon termination (FYI, see above about no interest. If your loan qualifies here, it also qualifies for no interset so of course there is no capitalization!)
This 60-day no-pay is also good for those of you rehabilitating a Direct Loan. If you’re rehabilitating an FFEL, again, it’s at the discretion of your loan holder.
Is there a way to convert your FFEL and/or Perkins to a Direct Loan? Yes, you could consolidate. However, if you’ve been on IBR for several years with your FFEL loan, you will lose any time you’ve accumulated towards IBR forgiveness. Ask yourself if it’s worth the switch. For many of you, it will be.
What Hasn’t Changed?
A lot! Wage garnishment, social security offset, and tax intercepts are still allowed. Even lawsuits could still be initiated. USED hasn’t done a whole lot to help folks here. They could, they simply choose not to. I’ll keep updating as changes occur.
What Should You Do?
I can’t say. Everyone’s situation is unique. If you think you need a temporary reprieve, and you qualify for the special forbearance, take it. If you don’t qualify, or even if you do, and your income has decreased, you can apply for IDR if you’re not already on it. If you’re on IDR, you can request your servicer recalculate based on your newly reduced income. You can’t do this over the phone. Go to your servicer’s website and follow their directions. Some let you do it online, others will let you download the paper application.
If you’ve become unemployed, DO NOT TAKE AN UNEMPLOYMENT DEFERMENT. Instead, do what I just recommended. Enroll in IDR or have your IDR recalculated. No income means a $0 payment – you don’t need a deferment!
Another thing you should do is follow me on Facebook. I’ll be holding a Facebook Live session on Wednesday, March 25th at 1:00 PM EST. Don’t worry if you miss it. I’ll have more.