Recently President Trump announced he will waive the interest on student debt held by federal agencies “until further notice” in response to the COVID-19 coronavirus pandemic. Shortly thereafter, he suspended student loan payments for 60 days as well. While interest will be automatically waived, you will need to contact your loan servicer in order to request forbearance, or to suspend your payments.
— CBS News (@CBSNews) March 20, 2020
Since this payment deferral measure is described as an “administrative forbearance,” it will likely not count toward the total amount of forbearance you are allowed through the length of your loan, but we encourage you to discuss the specific terms when speaking with your student loan servicer.
If, however, you become “more than 31 days delinquent as of March 13, 2020” on your qualified loan, the U.S. Department of Education has “also authorized an automatic suspension of payments.”
We spoke with a student loan expert to find out what this could mean for you, as well as steps you could take to lower your payments or make them more affordable.
If you don’t request a deferral, you’ll still be required to make monthly payments.
“It’s important to note [the automatic waiver] isn’t a payment waiver — it’s just an interest waiver.” Robert Farrington, a student loan expert at The College Investor explains. “For most borrowers who are in repayment, it’s a nice perk — more towards the loan principal — but it doesn’t help if you’ve experienced job loss or income loss due to the pandemic.”
If you don’t request the deferral, your monthly payment amount is unlikely to change
“If you’re paying your loans, and they qualify, you will still be required to make full monthly payments. However, it will all go to the principal,” Farrington says.
While this may not provide immediate relief to your monthly expenses, it can help you down the road. By stopping interest temporarily and allowing all of your payment to go directly toward the debt you borrowed, it will reduce the total amount you end up paying back on your loan.
These waivers don’t apply to private student loans
It’s important to note that this measure only applies to federal student loans held by the U.S. Department of Education. This includes: “all Direct and ED-owned Federal Family Education Loans (FFELP) in any status (in repayment, in school, grace, deferment, forbearance, etc.).”
What if you can’t afford your student loan payment?
1. Contact your student loan servicer to request the 60-day administrative forbearance
Whether you have federal or private student loans, you can reach out to the company that manages your student loan, this could be your lender or the “servicer.” If you hold federal student loans and you’re not sure who your loan servicer is, you can call 1-800-433-3243 to speak with the Federal Student Aid Information Center. Even after the 60-day adminstrative forbearance, you can still request additional months of forbearance, assuming you still have months remaining in your loan’s forbearance limit. Your servicer can explain how many months you have available if you aren’t sure.
2. Apply for an Income-Driven Repayment Plan
If you’re still earning income, but it won’t be enough to keep up with your federal student loan payments after the two-month forbearance is over, you can reach out to your student loan servicer to see if you are eligible to apply for an income-driven repayment plan.
This is an option that can alter your student loan payments by taking into account your income and family size, but it’s only available to federal loan borrowers.
While lowering your monthly payment may mean you end up paying more overall, it could be the difference between making ends meet now. You can find more information on income-driven repayment plans and how to qualify by visiting the Federal Student Aid website.
3. Consider unemployment deferment
It won’t be possible for everyone to replace their income with side gigs, so Farrington suggests keeping in mind another alternative: deferment.
“If you lose income or your job, you can ask for an unemployment deferment up to 3 years (in 6-month intervals),” he explains. Usually, this measure will stall your payments while continuing to accrue interest, but as long as the federal student loan interest waiver is in place, your balance won’t build interest.
4. Pick up a side hustle
The digital economy offers plenty of opportunities to start a side hustle that requires minimal human interaction. Starting an online Etsy shop, selling clothes on Poshmark, and freelance writing can all help you stay on budget.
As long as you aren’t showing signs of illness and haven’t been exposed to anyone who is, there are also ways to earn extra income by driving for services like Amazon Flex or DoorDash. With the increased consumer demand for delivery, Amazon recently announced it will be hiring 100,000 more workers across the U.S.