With more than $1.6 trillion in student loan debt, no doubt many people are looking for payment relief during the pandemic.
If you have federal student loans, you are in luck. The Coronavirus Aid, Relief and Economic Security (CARES) Act offers breathing room for those with federal student loans. As of March 13 until Sept. 30, 2020, principal and interest payments on federal student loans are suspended for six months. This forbearance is automatic. You don’t have to do anything to kick this into action. Be clear though, you still owe those payments, you will just deal with them later. If you are able to make your payments, you can still do so. That money will be applied to principal which will help you knock off your loan faster.
Know that older Federal Family Educational Loans that the U.S. Department of Education does not own are not eligible, nor are Perkins Loans that your school owns, and neither are loans from state agencies.
What about private loans?
For sure the news is good for those with federal student loans, but what if your loans are not tied to the U.S. Department of Education?
“While those who are left out may be eligible for some help, it is neither automatic nor as comprehensive as that provided to federal borrowers, which could leave them more at risk of missing payments or defaulting on their debt during this time of disruption,” says Sarah Sattelmeyer, director of the project on student borrower success at The Pew Charitable Trusts.
But, if you are one of the 300,000 New Yorkers with commercial Federal Family Education Loan Program loans or private loans owned by private lenders, thanks to the New York State Department of Financial Services’ agreement with 90% of these types of institutions, and are facing financing hardship due to the coronavirus, you can contact your student loan servicer to defer student loan payments for 90 days and take advantage of other initiatives like no late fees. You don’t have to worry that deferring your loan will impact your credit score because the information won’t be reported to the credit bureaus.
However, New York is the exception, rather than the rule. “Other than in the State of New York, when it comes to private student loan lenders, there is no protection from collection actions or having to pay, or even to having your stimulus check attached if there is a judgment against you by a student loan creditor,” says attorney Marc Dann, with DannLaw in Cleveland, which specializes in bankruptcy.
But even if your private lender isn’t one that has adopted the deal with New York State, all may not be lost.
“Most private lenders will use what the federal government is doing as a bench mark. Some aren’t willing to say that they will do forbearance for six months. But they want to do the right thing for the borrower,” says Chris Keaveney, a former head of student lending at Chase and current CEO of Meritize, a loan provider for skills-based education and workforce development in Dallas.
What’s common, he says, and what his company is doing when it comes to disaster forbearance, is no payment or interest for 60 days. “We will check in with the borrower. We don’t expect that everything will be fixed. But maybe they’re back on their feet and if not, then we can evaluate whether to extend the arrangement.”
Ask for what you need
Jeannie Tarkenton, founder of Atlanta-based Funding University, which offers student loans, says that while private lenders don’t have the depth of cushion that the government has in terms of absorbing payment interruptions, “the good players in private lending really do want to help.”
She outlines a strategy. “Contact your loan servicer and ask, ‘What are the forbearance programs available to me according to my loan agreement?’ Demand that you get a full and detailed answer that makes sense to you and gives you a clear set of terms.”
If you feel you get bad customer service or terms that you don't understand, ask to talk to a manager and call the customer service line of the bank or credit union or online business where you originally got your loan. “Those companies are very much interested and have financial reason to ensure that you get the program available to you and that the loan servicer is performing well,” says Tarkenton.
What can you expect?
She says a private lender typically would offer a 30-day emergency deferral of loan payment, meaning no payment for that month, but the payment will be added to your later payments.
Know that every lender must have a written forbearance policy for economic hardship. “This policy is your next step if you need more than 30 days of help. Tell the servicer you want to receive the details of the forbearance. (The program also should be written in your original loan paperwork and should be clearly noted as 'forbearance policy.'),” she says.
Usually in order for a forbearance policy to be triggered for you, the servicer will require you to fill out a form explaining why you are experiencing economic hardship; this form will be reviewed and then you should get a communication from them informing you if you have been approved for forbearance and it should show you how your future payments and loan balance will be affected by the forbearance program.
You then will have the option to take or refuse the forbearance program. Typically, a forbearance program begins with a 90-day period at which your payment is reduced to a small amount or even zero, she says.
Be sure to inquire about what happens after the 90 days. “If they are a good company, they will contact you 10-20 days prior to the end of the 90 days to remind you the program is coming to an end. Some loan companies will offer to let you go through the process again and apply to do a second 90-day forbearance,” she says.
Think outside the box
There are a couple of options that could prove fruitful during this difficult time. Travis Hornsby, founder of StudentLoanPlanner.com, offers the reminder that you can still refinance private student loans to a lower rate or a lower payment. “Student Loan Planner is trying to keep the lowest rates in front of our readers, which are mostly coming from bank lenders right now that have access to cheap deposits.”
Leslie Tayne, a debt resolution attorney with the Tayne Law Group in Melville says, “Consider asking your employer if they are offering repayment assistance on student loans. The CARES act is incentivizing employers to provide programs for employees with tax-free funds for tuition assistance and student loan payments reimbursement.”