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The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, suspends federal student loan payments, sets interest rates to 0% and stops all collection activities on defaulted loans until Sept. 30.
But the $2 trillion stimulus doesn’t forgive student loans. That means you can’t totally forget about your debt — despite the six months of skipped payments making it easy to do so.
“It really kind of puts [student loans] out of mind,” says Matthew Carrington, a 36-year-old from Charleston, South Carolina, who owes approximately $65,000 in federal student loans.
Absent more student loan relief, payments will return to normal in October even if your finances haven’t. And those skipped months will probably be added back at the end of your loan.
If you’re worried about making those future federal loan payments, consider the following options now.
Keep postponing payments
If you’ve lost your job and you don’t think you’ll be back at work by Sept. 30, you could extend the government’s pause by applying for deferment or forbearance. No payment is due during either.
Payment breaks can make sense if you’re “absolutely certain that [your] financial shock is short-term in nature,” says Seth Frotman, executive director of the Student Borrower Protection Center, a Washington, D.C.-based nonprofit.
Apply for an unemployment deferment first if you expect to start work soon after Sept. 30 and will be able to afford your previous payments. This break is available in six-month increments.
Subsidized loans don’t accrue interest during a deferment, saving you money if you have that type of loan.
If you can’t qualify for an unemployment deferment, you could turn to forbearance. Forbearance charges interest on all loans, increasing the amount you owe.
Switch your repayment plan
If your financial situation won’t improve quickly, match your payment plan to your new reality.
“There are very powerful tools to help federal student loan borrowers achieve long-term financial success,” Frotman says.
Income-driven plans are the most notable — and the best option if you’re struggling, he says. These plans align your payments with your income and family size. Payments can be as small as $0.
Carrington currently uses an income-driven plan and says his $185 monthly payments are manageable.
“I don’t enjoy paying,” he says, but adds that he’s not “struggling every month to find that money.”
Carrington expects to be able to afford those payments after the suspension ends. But if you use an income-driven plan and your income has changed, ask your servicer to recalculate your bill.
Take action now
Whether you want to postpone payments, enter an income-driven plan or request a new payment, your primary contact will be your student loan servicer.
And that concerns Frotman.
“What we have seen is that the federal student loan system is so broken,” he says.
As an example, Frotman notes servicers’ inability to effectively communicate with borrowers after the hurricanes and wildfires of 2019, leading in part to a 14% increase in student loan defaults.
Currently, servicer call centers are closed or understaffed. As a result, you may experience communication issues and delays processing income-driven repayment applications or other forms. Stay vigilant.
“Take advantage of the six-month time,” says Bonnie Latreille, director of research and advocacy for the Student Borrower Protection Center. “Take action now.”
Should you forget about forgiveness?
Talk of student loan forgiveness persists. For example, former Vice President Joe Biden is pushing for $10,000 of loan forgiveness in the next stimulus package. And Rep. Carolyn B. Maloney, D-N.Y., has introduced a bill to forgive graduate student debt of frontline health care workers.
New relief or forgiveness could be available by the time October payments are due. But don’t count on it, as the debate is far from settled.
William J. Luther, director of the Sound Money Project at the nonpartisan nonprofit American Institute for Economic Research in Massachusetts, has previously called forgiveness bad policy.
Even in light of recent events, he says “a student loan debt forgiveness policy does not target those who need it most.”
Luther says college-educated individuals are less likely to work in retail establishments affected by the coronavirus, such as bars, restaurants and clothing stores. Those individuals need relief the most right now.
Frotman takes a longer view, pointing to the millions of Americans who had financial trouble before the pandemic.
“A significant percentage is there partially because of their student debt,” he says.