The coronavirus outbreak has caused schools and businesses to shut down across the country. So what does that mean for your student loan repayments? While the federal government has waived interest on federal student loans until the middle of May, you’ll need to get in touch with your servicer to explore your options if you have private loans.
Federal student loans
To help borrowers affected by the coronavirus, the federal government has introduced two programs:
Beginning on March 13, 2020, the Department of Education (DoE) set the interest rate for federally held student loans to 0% for at least 60 days.
But don’t expect your monthly payment to go down. Instead, it will go toward your loan’s principal and any interest that has already accrued. This may reduce the amount you owe overall, but it won’t provide much relief if you’re struggling to make ends meet during the COVID-19 outbreak.
Not all loans qualify, either. Your private loans will remain the same, and some federal loans issued by your school won’t be impacted by the interest waiver.
Some federal student loan borrowers have the option to suspend payments for two months through administrative forbearance. This means you won’t need to make any payments during that time, and the interest you would have paid won’t be added to your loan balance.
But unlike the interest waiver, this isn’t automatic. You’ll need to contact your student loan servicer to apply for forbearance.
Some borrowers, like those on an income-driven repayment (IDR) plan or seeking Public Service Loan Forgiveness (PSLF), won’t be eligible.
If you’re currently delinquent on a federal loan — or become more than 31 days delinquent on or after March 13, 2020 — you’ll be automatically enrolled in administrative forbearance for the duration of the COVID-19 national emergency. Collections will also be paused for loans that are currently in default.
Other options for reducing your payments
If you need relief beyond waived interest charges, consider enrolling in an IDR plan to lower your monthly payments. You can also contact your loan servicer to discuss your situation and any additional programs that may help during a period of financial hardship. Just keep in mind that this will exclude you from administrative forbearance.
Private student loans
Unfortunately, the government’s interest waiver doesn’t apply to private student loans borrowed from banks, credit unions or online lenders. That doesn’t mean there isn’t relief. You’ll just need to contact your lender to see if it’s offering any help or special programs during the coronavirus crisis.
Here’s what some private lenders are offering to borrowers affected by the pandemic:
Keep in mind that interest will continue to accrue during forbearance for all private loans unless otherwise stated by your lender.
Don’t have federal student loans? Consider refinancing instead
Now that the Federal Reserve has cut its benchmark interest rate to zero, refinancing rates are fairly low. If you’ve improved your credit and still have a steady source of income — or a cosigner with excellent credit — it may be a good time to consider refinancing your private loans with a different lender. This can help lower your monthly payments and could potentially mean you pay less in interest overall.
But think carefully before refinancing federal loans. Even if a private lender offers lower rates, you’ll lose out on federal benefits — including the current waived interest program — that could save you money.
If you’re struggling to pay your bills during the coronavirus pandemic, you can take advantage of the Department of Education’s interest waiver and forbearance options for your federal student loans. Plus, many private student loan providers are offering deferment and forbearance for borrowers impacted by the outbreak. If not, consider refinancing your private student loans now that interest rates are at an all-time low.
Learn about more ways to manage your finances during the COVID-19 pandemic with our guide.