This is your next move for your student loans.
Here’s what you need to know.
The Senate will likely reject the HEROES Act – the new $3 trillion stimulus bill passed by the House of Representatives – in its current form. The HEROES Act includes several benefits, including a second stimulus check for $1,200. If you have student loans, the most important provision for you is likely student loan forgiveness. Under the HEROES Act, if you’re struggling financially, you could be eligible to receive $10,000 of federal student loan forgiveness and $10,000 of private student loan forgiveness. Well, here’s the thing: Don’t expect student loan forgiveness in the next stimulus bill. So, given that, what should you do next with your student loans? Here are 5 hacks you can do right now and how they help you:
Hack #1: Get a lower student loan payment when your income drops
If you’re struggling to pay off your student loans, then you will want to enroll in an income-driven repayment plan. There are four types:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Income-driven repayment plans are for federal student loans only, and are based on your discretionary income, family size and state of residency. If you are unemployed, furloughed or experienced a pay cut – and you already enrolled in an income-driven repayment plan – now is a smart time to re-certify your income with your student loan servicer (the company where you make monthly student loan payments). Currently, federal student loan payments are paused, so your new monthly payment begins after September 30, 2020. At that time, your monthly payment will be based off your new income. Plus, if the HEROES Act gets passed and doesn’t include student loan forgiveness, you can still receive student loan forgiveness through an income-driven repayment plan after 20 or 25 years.
How This Helps You: You can get a lower monthly payment if your income has changed, and it will automatically take effect after September 30 when you resume federal payments for your student loans.
Hack #2: Get tax-free student loan forgiveness
With 36 million people out of work, this is not the easiest time to get a job. Many non-profits and governments have hiring freezes in the wake of COVID-19. However, if you want student loan forgiveness, the Public Service Loan Forgiveness program can help you gets student loan forgiveness for your federal student loans. You may not work in public service. You may think the requirements are too difficult. You may be concerned that hardly anyone gets approved. You may think the program will be cut. These are all reasonable concerns. However, if you can find an eligible public service or non-profit employer, borrowers have received public service loan forgiveness.
How This Helps You: You can receive student loan forgiveness for your federal student loans and won’t owe any income tax on the amount of your student loan forgiveness.
Hack #3: Get your student loan payments paused even if you don’t qualify
If you have FFELP loans, unfortunately the CARES Act (the $2 trillion financial stimulus package) doesn’t help you save money on your student loans. The HEROES Act, like several other proposals, would help save you money on your student loans if you have FFELP loans. What if the HEROES Act doesn’t pass the Senate? You can use student loan consolidation as your next hack. A Direct Consolidation Loan is a smart tool to organize your separate federal student loans into a single loan so you only have one monthly payment, one payment date and one student loan servicer. The only downside: your new interest rate is simply a weighted average of your current interest rates (not lower), rounded up to the nearest 1/8%.
How This Helps You: FFELP loans are not owned by the federal government, so borrowers are missing out on all the student loan benefits under the CARES Act. However, there’s a hack for your FFELP loans, and it’s called a Direct Loan Consolidation. Once you have a Direct Consolidation Loan, you can now be eligible to pause your federal student loan payments, get 0% interest and not have your wages garnished to pay your federal student loans — through September 30. Your federal student loans also would be eligible for public service loan forgiveness.
Hack #4: Pay off your private student loans twice a month
Who said you have to make a monthly student loan payment? Your student loan servicer. Guess what? You can pay your student loans more often than once a month. This is particularly important for private student loans, since the CARES Act did not help you pause private student loan payments. If you owe $600 a month, you could split your payment into bi-weekly payments of $300 each. Or, you could pay $150 a week. Make sure to alert your student loan servicer in writing so that they apply your payments correctly, and do not hold your additional payment until the next payment cycle.
How This Helps You: It’s the same monthly payment, but by paying more frequently, you will save interest costs. So, the timing of your payments matters.
Hack #5: Get a lower interest rate — permanently
How do you get a lower interest rate for your student loans? Answer: student loan refinancing. If you are unemployed or furloughed, then student loan refinancing is not right for you right at this time. However, if you are employed, student loan refinancing is one of the smartest moves you can make right now. Student loan refinancing helps you get a lower interest rate and pay off your student loans faster. You can refinance federal student loans, private student loans or both. Why would you refinance your student loans if federal payments are paused and the interest is 0%? Well, you could refinance your private student loans only (and keep your federal student loans outstanding). Or, you could refinance both your federal student loans and private student loans. While your federal student loans payments are temporarily paused, your student loan balance is not going away after September 30. Plus, student loan refinancing rates are very low.
This student loan refinancing calculator shows your how much money you can save when you refinance student loans.
How This Helps You: You can get a lower interest rate permanently, which helps you pay off student loans faster and save money.
If the HEROES Act doesn’t pass – and you don’t receive student loan forgiveness – you need to get prepared now. With all the financial and economic pressure, it may be hard to process everything right now. However, simply waiting for a solution like student loan forgiveness won’t help you. Take the time upfront to get a student loan repayment plan so you can save money now and pay off your student loans faster.