CARES Act Relief FAQs for Student Loan Borrowers
Student debt has always been difficult to repay. In fact, one in five adult borrowers who funded their own education were behind on their payments in 2018. Pair this with one of the most difficult economic environments we’ve seen in decades – skyrocketing unemployment, limited options for career advancement and a volatile stock market – and paying off student loans seems more difficult, if not impossible for some.
In my practice, many of our clients are in fields like education that require graduate degrees and often struggle with debt. We aim to help them develop comprehensive financial plans that help them pay off debt, while saving and planning for the future. But in times of crisis like this, it’s especially important that borrowers understand their options for immediate assistance and relief – without losing sight of the big picture.
The CARES (Aid, Relief and Economic Security) law against the coronavirus has offered some relief to student borrowers on public loans. But the nuances can be confusing, leaving many to wonder how much of their debt can be relieved, and how. And many of our clients are also questioning what the changes mean to them and how best to proceed to find a path to a fulfilling financial future, despite these obstacles.
The good news: If you have public student loans, the CARES Act provides some relief. All Federal Direct Loan borrowers are automatically enrolled in administrative forbearance and have zero percent interest from March 13 to September 30, 2020. All overdue balances will become current.
All borrowers who were enrolled in an income-based repayment program before March 13 and who met other conditions for Public Service Loan Forgiveness (PSLF) will receive a credit each month as if they had made a loan. payment eligible for the PSLF.
The CARES Act also provides relief for all Federal Family Education Loans (FFELs) held by the federal government and Parent PLUS loans. It does not cover private student loans, FFEL loans held by banks, or Perkins loans.
With a new manual in place, my clients are wondering how best to decide whether they should take advantage of these new regulations to stop paying their loans altogether for the sixth month period, or whether they should take advantage of interest rates historically. low. and refinance. Here are the questions most frequently asked by student loan borrowers and how we advise them to navigate these new changes.
If I can get temporary payment relief, do I need to?
If a customer was already enrolled in Public Service Loan Forgiveness under an Income-Based Repayment Plan (IDR) before March 13, they will continue to accumulate a forgiveness for each month of COVID-19 forbearance. even if it technically does not make payments. , which will always count as a payment for the loan cancellation.
However, if a customer could qualify for the PSLF, they should consider signing up for the PSLF and making their IDR payments earlier, waiving COVID forbearance so they can start accumulating qualifying payments during processing. of its PSLF request.
Signing up for the PSLF takes time, and the end of abstention is, from now on, around the corner on October 1.
Anyone who can still afford to continue making payments should consider continuing to make payments until they qualify for loan forgiveness programs – because they will pay off their loans faster, while earning zero percent interest on them. ready. Customers should consult their tax and legal advisor before acting on any payment option.
Do I still have to keep making these payments to get credits?
Short answer: No. We always start by asking customers: Can you afford to make payments right now? In some cases, a client or their spouse will have recently lost a job due to COVID-19, and a monthly student loan payment of $ 100 on top of other expenses is not feasible. In these cases, we will often look to see if PSLF is an option and if so, register them as soon as possible.
Interest rates are at historically low levels. Should I consider refinancing my loans at a lower interest rate?
Right now, interest rates are the lowest in our life. Thus, borrowers who do not qualify for PSLF or other forgiveness programs – or who do not intend to spend their careers in a nonprofit organization – would be advised to take the opportunity to refinance and capitalize on the current low interest rates.
What should I do if I am not eligible for pardon, but am having difficulty making my payments due to a layoff, pay cut or other COVID-related circumstance- 19?
The CARES Act essentially puts student loan payments on a “pause” for public borrowers – allowing them several months to recover without penalizing them for missing payments. This should provide relief to borrowers who are financially affected by COVID-19.
However, since the CARES law only covers those with public student loans, those with private student loans may still be left with questions – especially since relief offers from private lenders typically do not. not so complete. If you have private loans, your loan manager can still offer relief or refinance options, so it’s worth reviewing your options and considering what makes the most sense for your particular situation.
The road ahead
Debt is managed effectively when it is managed holistically. This is especially important to remember in times of crisis. Whether it’s navigating the short term or building for the long term, your student loans are an important part of your overall portfolio, just like your retirement plan and investments.
Loan payments can spill over into your entire financial plan, impacting everything from life insurance payments to bank balances. The key is to manage them, recognizing that there are strategies available to pay off even overwhelming amounts of student debt. By understanding the options available to help you – and how you can take advantage of them – you’ll be in a good position to get your debt under control, helping you achieve your financial goals.
Randy Lupi (insurance license CA # 0M82117) offers securities through Equitable Advisors, LLC (NY, NY, member: FINRA, SIPC) (Equitable Financial Advisors in MI & TN). Investment advisory products and services offered by Equitable Advisors, LLC, an investment advisor registered with the SEC. Annuity and insurance products offered by Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC in California). Equitable Advisors and its associates and affiliates do not offer student loan discounts, legal, tax or accounting advice or services. You should consult qualified professionals in these fields. AGE-3145716 (7/20) (Exp. 7/22)
Regional Vice President and Retirement Planning Specialist, Equitable Advisors
Randal “Randy” Lupi is a Regional Vice President and Retirement Planning Specialist with Fair advisers. He works with clients to create personalized plans for retirement planning, investing, and student debt management. His dedication to clients has earned him the 2019 Elite Advisor recognition from the National Tax-Deferred Savings Association (NTSA).