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Student Loans

HAVE STUDENT LOANS? NEED TO GO INTO FORBEARANCE DUE TO THE COVID-19 VIRUS? WHAT YOU SHOULD KNOW

Many families are facing a tough choice: to pay their student loan payments or provide for their family with most opting to put their family's immediate needs first. This month families don't have to face this decision as the U.S. Department of Education (USDOE) announced, they are placing all loans held by them into a temporary forbearance and setting interest rates to 0% for at least the next 60 days.

On March 20, President Donald Trump announced that U.S. Department of Education will provide student loan relief in response to the hardship faced by Americans as a direct result of the current COVID-19 pandemic. This means, student loans will automatically have their interest rate set to 0% for at least 60 days and borrowers can suspend their payment for two months.

Amazing news for millions of Americans who hold student loan debt and a potential lifeline for families' financial future. Under normal circumstances, when a borrower defaults on their student loans, it negatively affects their credit and puts them at great risk for garnishments- either wages, taxes, or even social security benefits. 

The average student loan payment in the United States is a hefty $393.00 per month, so looking at families with two adults paying student loans, that's nearly $800 per month out of what might already be a strained budget. As unemployment and underemployment begin to climb during the COVID-19 global Pandemic, allowing families to refocus their budget towards necessities will provide some relief with long term benefits. Allowing families to keep some sense of normalcy during this crisis can help aid in the mental health of the families and not forcing a choice to purchase groceries or damage financial health by not making these payments.

Myfedloan.org has announced student loans will go into automatic forbearance for borrowers who become delinquent; however, borrowers can also request assistance at any point. For some, this might not be a good option because placing loans into forbearance will impact progress on forgiveness programs, but there are several other options to relieve the stress of making payments. Some servicers are setting a much longer forbearance timeframe for past due loans, Navient, for example, is extending the forbearance period to March 31, 2021. 

Although this is great news, there are important points to consider before you can request a forbearance.

  1. Automatic forbearance will only apply to those who have past-due loans (more than 31 days). Others, who are current, must request that their loans go into forbearance. You may request forbearance online or by contacting your loan servicer at the numbers below:
  1. For those in the public service sector, the time spent on forbearance will not count towards your Public Service Loan Forgiveness (PSLF). This only effect those who work in the Public Service sector and hope to have their loans forgiven after making 120 qualifying monthly payments.

Setting the interest rate to 0%, even if temporarily, can have some long-term benefits. Making payments during the temporary rate reduction can reduce the total amount of interest paid on the loan and be a savings to borrowers. The payments made during the reduction period will pay off all previously unpaid interest prior to March 13, 2020, then be applied towards the principal balance. Basically, if borrowers were making payments regularly and their payment was made on March 1, 2020, the next payment they make will pay interest accumulated from March 1-12. According to Studentaid.gov, these interest rate changes will automatically go into effect and will take some time to post onto borrowers' accounts but will be retroactive to March 13, 2020. There is no deadline for when they will stop the rate change, so borrowers will need to watch the updates put out by servicers.   

What should you do?

Despite the heavyweight of student loans, there are many programs available to manage student loan debt at all stages.

Consider going into an Income-Driven or Income-Based Repayment Plan (“IBR”). If your income is low or you do not have an income at the moment, your payments could be as little as $0.00. The advantage of IBR is that, generally speaking, for the time that you are on IBR, your monthly payments (even if $0.00) will count toward your Public Service Loan Forgiveness. If you are in forbearance and not making loan payments, the months, the months you remain in forbearance will not count toward your Public Service Loan Forgiveness.

Setting up a payment plan best suited to a borrower's financial situation is a great start but navigating the plethora of options can prove to be daunting. Getting default loans back into good standing in order to improve credit or avoid garnishments is complex and not easy to get clear information. There are also programs for forgiveness or forbearance, which are lengthy processes but can clear thousands of dollars for those who are eligible. Select Law Group PLLC is available to help guide borrowers through their options, address unique situations, and answer questions. 

Thank you for taking the time to read this blog. We will continue to bring you updated information on many other topics including stimulus checks, auto loans, home mortgages and other topics effecting you and your family during the current COVID-19 pandemic.

Questions or Comments:

If you have any questions about the above information, please contact our office at 602-910-7525 or through our contact form. Additionally, if there are any other topics you would like covered or legal questions you have related to COVID-19, please submit your questions or suggestions via our “Contact Us” form.

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