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Unless you’ve got a crystal ball, you probably never would have guessed how crazy things have gotten this year. It’s been a whirlwind of change! And for people who have been severely impacted by the COVID-19 pandemic—deaths and illness in the family, unemployment, furloughs, homeschooling, childcare shifting—whirlwind is the understatement of the century.
One of the ways the federal government has been trying to calm the storm is through financial relief programs. And if you’re one of the 42.8 million student loan borrowers out there, then you might have gotten some temporary relief on your student loan payments through the CARES Act passed in March.1 But that was set to end September 30, 2020. Now with the crystal ball as hazy as ever, the president has passed an executive action to extend the emergency student loan deferment through December 31, 2020.2
All the details haven’t been hammered out yet, so wait just a sec before you do your I-don’t-have-to-pay-my-student-loans-for-the-rest-of-the-year happy dance. Let’s take a look at what we know about the student loan payment relief extension and if it applies to your situation.
How the CARES Act Affects Student Loans
Let’s flashback to March 2020 for a minute. COVID-19 was just beginning to pick up steam in the United States and cases were rising across the country. In an effort to slow down the spread of the virus, many states went into varying levels of lockdown, ranging from full-on stay-at-home orders to looser safer-at-home suggestions.
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As a result, in just a matter of weeks, millions of people suddenly found themselves jobless as businesses buckled. In order to help Americans and stimulate the economy, Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (aka the CARES Act).
The CARES Act isn’t perfect, but it attempted to help Americans with federally owned student loans by offering:
- Temporary payment suspension
- A 0% interest rate
- A pause on all collections and wage garnishments on defaulted loans
The CARES Act is still set to expire September 30, 2020. But as the pandemic continues on and unemployment rates remain sky-high, the president opted to extend student loan relief until December 31, 2020.
How the Student Loan Payment Relief Extension Affects Your Student Loans
OK, first things first: This isn't an extension of the CARES Act, but it's continued relief from student loan payments. There may be other relief packages on the way, but for now, let’s focus on what we know about student loan debt relief.
The basic takeaway is this: Beginning October 1, 2020, repayment of all federally owned student loans is on pause, and the interest rate will remain at 0% until the end of the year.
But what constitutes a federally owned student loan? Here’s what’s included: Direct Stafford Loans, Direct PLUS Loans for parents and graduate students, and Direct Consolidation Loans. It also covers Federal Perkins Loans and Federal Family Education (FFEL) Program loans if they aren’t commercially owned.
Like the original piece of the CARES Act, all borrowers with federally owned student loans are automatically included. That means you don’t have to sign up to have your payments or interest waived—it should happen without you needing to do anything. In fact, if you want to keep making payments, you have to call your loan servicer each month to make a payment. But we still recommend checking in with your student loan provider.
Navigating student loan repayment can be a total maze even in less insane times, but right now, it can be more confusing than ever. (Even more motivation to finally kick this debt to the curb so you don’t have to worry about student loan debt ever again!) So, let’s take a look at how this student loan payment relief extension plays out in certain circumstances.
Loans That Are in Default
If you were in default on your student loans before the pandemic, meaning you hadn’t made on-time payments, the CARES Act may be an opportunity to get caught up. With no payments, no interest, and no wage garnishments or collections on federally owned student loans through the end of 2020, it might be just the right time to push forward while no new payments are coming up on you from behind. Plus, if you’ve had your wages garnished during this time, you can request a refund.
But maybe COVID-19 has meant your hard times have gotten harder. The student loan piece of the CARES Act might be giving you just enough breathing room to pay your rent or keep food on the table. If this is your situation, it’s important to get in touch with your loan servicer before December 31 to discuss a plan for what your 2021 payments will look like.
And speaking of plans—if you’ve been putting off making (and sticking to) a budget, there’s no time like the present. If there’s one thing that can take some of the sting out of a stressful time, it’s having a plan for your money. We’ve got a great tool to help you get started.
Public Service Loan Forgiveness
Also included in the student loan payment relief extension are some special callouts for the Public Service Loan Forgiveness (PSLF) program. If you’re seeking PSLF qualification, under the CARES Act, your federally owned student loan payments and interest are waived until December 31. Plus, the months that you aren’t paying on your student loans still count toward the 120 monthly payments needed to qualify for debt forgiveness, as long as you’re still working full time for an eligible employer.
Real talk: The PSLF program has more hoops and hurdles than a horse show. But if you’re still trying to make it work, make sure to check in with your loan servicer before December 31 to make sure you’re still checking all the right boxes the program requires.
If you’re still working and in a position to keep paying on your student loans, do it. Take advantage of 0% interest and attack your principal. Show it no mercy! Besides, with only 1.8% of people ever qualifying for PSLF, this is not a time to put all your eggs in the government’s basket.3 The sooner you’re out of debt, the sooner your money belongs to you.
Private Student Loans
OK, so if you have student loans, then you’re probably well aware by now that the CARES Act does not include any relief for private student loan borrowers. And this new extension doesn’t either.
But you do still have some options here. Look, it’s highly unlikely any bank or private lender is going to proactively do anything to help you with your loans. So if your finances have taken a major hit during this time, you’re going to have to pick up the phone, call your loan servicer, and ask for help. If they’ve previously offered relief, ask for an extension. Ask if they’ll pause your payments for a period of time or reduce your payment amount.
This is important: If you’re in a position to keep paying on your loans, whatever the amount, then keep at it. Even if you have to scale back temporarily, don’t lose steam at crushing your debt. You deserve a debt-free life!
Commercially Held Federal Student Loans
The new student loan payment relief extension only applies to federally owned student loans. That means no commercially owned FFEL Program loans or Federal Perkins loans are eligible. (If you have a federally owned FFEL or Perkins loan, then you’re good.)
How You Should Pay Off Your Student Loans
You know money stress is terrible. You know that it oozes into every second of every day, robbing you of your peace of mind. This global pandemic may have really pulled the rug out from under you in a big way. But that doesn’t mean you should bury your head in the sand and wait for your student loans to magically disappear. In fact, the more you lean into a plan of action that includes making and sticking to a budget, the more control you’re going to get back. Trust us, your gazelle intensity will be a lifesaver.
So no matter how the pandemic has affected your finances, you can still be working toward your goal to knock out student loan debt for good. The timeline might look a little different than you expected, but stay the course. You got this!
If Your Income Is Stable
If your income is stable and you’re sitting on student loan debt, you’ve got a couple of really good options available to you. The first is to keep on keepin’ on—that is, keep tackling your student loan payments each month. With 0% interest on federally owned student loans, your entire payment is going directly toward your principal. Heck yes! You’re paying those bad boys down faster than ever.
With the debt snowball, you work your debts down from smallest to largest. Here’s how that plays into your second option. If you’ve got other smaller debts you’ve been paying the minimums on, you can take your monthly student loan payment and start knocking out those smaller debts while your student loan payments are paused.
If you take the second option, you must keep a debt-attacking mindset. Yes, your student loans are paused through December 31, 2020, but they aren’t gone! Take advantage of this time to wipe out smaller debts and then immediately return to paying off your student loans.
Remember, your student loan payments have been automatically paused. You must make arrangements each month to make a payment. Sure, it’s a little bit of a hassle, but it’s totally worth it!
If Your Income Is at Risk
Maybe you’ve been furloughed, maybe you’re self-employed or a small business owner, maybe you’ve got a baby on the way—whatever the case may be, don’t let financial uncertainty derail you. If your income is at risk or you know your expenses are going to change in a big way (hello, new baby), your job is to stockpile money.
If you’re on Baby Step 1, get your emergency fund up to $1,000 as fast as you can. If you’re on Baby Step 2 and you can keep paying all your minimum payments, including your student loans, do that. But stash any extra funds you have each month. Have $10 leftover in your grocery budget and $30 in your gas budget? Put that $40 into your emergency savings pronto.
Here's the deal: When it comes to student loans, during this extension, technically your minimum payment is zero. So if you’re really starting to feel the pinch or think the pinch is coming, then hit pause on your student loan payments and sock those funds away.
Whether you keep paying on your loans or pause, remember, this is only temporary! As soon as the dust settles, start paying down your debt again with a vengeance.
If You Lost Income
OK, take a deep breath. Let’s stay focused. You’re going to be OK. If you or your spouse lost your job or your income has gone down, then priority number one is making sure your Four Walls—food, utilities, shelter and transportation—are taken care of. If there’s anything left over, save it. Pause your debt snowball. There’s no penalty if you skip your federally owned student loan payments through the end of the year. Use that money for your Four Walls. If you have private student loans, call your loan servicer ASAP and ask if they’ll pause your payments or work with you on a reduced payment plan.
Remember, this isn’t a forever situation. Stay calm and stick to the plan. As soon as your income goes back up, resume attack mode on that debt.
Should You Consolidate or Refinance Your Student Loans Right Now?
Nothing like a global pandemic to motivate you to get your priorities in order, right? While the CARES Act and the student loan payment relief extension can help you catch your breath, and maybe even get ahead, don’t miss an opportunity here to nab yourself some better terms on your student loans. Plus, the CARES Act and its friendly extension only apply to federally owned student loans. That means business as usual for your private student loans.
If you’re like most borrowers and you’ve got more than a handful of student loans floating around out there, it might be time to consolidate and refinance your loans so you only have one payment (with better terms) to deal with each month. But refinancing is not for everyone.
You should only refinance your student loans if:
- It won’t cost you anything to refinance them.
- You can get a fixed interest rate instead of a variable rate.
- Your new net interest rate is lower than your current net interest rate.
- You don’t sign up for a longer repayment period.
- You don’t get so relieved by the thought of a single payment that you lose your motivation to pay off your debt fast!
Depending on the types of loans you have—federally owned, privately owned or a mix of the two—refinancing could help you get out of debt faster. Find out your new estimated rate in a few minutes.
What We Don’t Know About the Student Loan Payment Relief Extension
The Department of Education is continuing to release more details about the student loan payment relief extension. But one thing that hasn’t been ironed out yet is how the extension affects borrowers who’ve had their federally owned student loan payments paused due to financial hardship, like unemployment.
If that’s your situation, then you know your interest accrual was frozen for three years. What we don’t know yet is whether or not these additional months provided by the extension will count toward the three-year limit, or if those who have met the three-year limit will get an extension too.
If you’re not sure what your next steps are, play it safe and get in touch with your loan servicer before September 30, 2020.
Get Rid of Student Loan Debt
Truth bomb incoming: An extension is not an excuse to put off planning for a debt-free life. Don’t wait until January to come up with a strategy to pay down your student loan debt. Do it now. As in today. And don’t rely on the government to figure out a solution for your debt. You see how many unanswered questions there are—take control of your money and your future.
If you’re financially able to continue attacking your student loan debt, then don’t slow down now. You’ve got some great opportunities to make the CARES Act and the extension work even harder for you. But if you’re just getting started or the pandemic has forced you to slow down your debt snowball, it’s time to really focus. You don’t have to waste decades of your life trying to get out of student loan debt. Instead, get Anthony ONeal’s Destroy Your Student Loan Debt, a step-by-step plan for paying off your student loans faster. Dump your debt so you can live a life of freedom.