How Extended Student Loan Relief Impacts Your Goals

The temporary student loan relief included in the CARES Act has been extended through the end of the year. An executive order signed August 8th extended the relief provisions through 12/31/2020. Federal student loan relief is stretching out to cover nine months which means it’s important to think about the impact it has on your goals.

What type of student loan relief are we talking about?

All of the below items only apply to federal student loans. If you have private student loans and are struggling to make payments, contact your servicer.

• Interest won’t accrue on student loans owned by the Department of Education.
• Federal student loan payments are suspended.
• The Department of Education will consider each month during this period of suspended payments as an eligible month toward loan forgiveness.
• Suspended payments are treated as a satisfied monthly payment for credit reporting purposes.
• Involuntary collections will be stopped during the period of suspended payments.

Goal #1: I want to get my student loans out of default.

• Rehabilitation and consolidation are the two options for getting your federal student loans out of default. You can read more about how to get your student loans out of default.
• Once you’ve entered into a rehabilitation agreement you will need to make nine months of on time payments. Your payments are paused through the end of the year because of the temporary relief. That means after you initiate rehabilitation you can satisfy monthly payments without having to pay.
• The interest rate on Dept of Ed owned loans is 0% so consider making payments if your situation allows it. Your payments will be used more efficiently to pay off your remaining balance.
•  Wage garnishments will remain paused until January 2021. If you had wages garnished during that period of time, reach out to your servicer so they can contact your employer to stop. You are also entitled to receive a refund of any involuntary collections made after 3/13/2020 from the Department of Education.

Goal #2: I’m working toward loan forgiveness.

• You don’t have to make any monthly payments through the end of the year.
• All the months of non-payment during the temporary pause will count toward the required number of payments. So if you’re pursuing Public Service Loan Forgiveness (PSLF) or Income-Driven Loan Forgiveness (IDLF) you will have had nine or ten payments (depending on your monthly payment date) counted from March 13th through December 31st.
• Making payments on loans that are eligible for PSLF doesn’t make sense because you can’t pay ahead or have loans forgiven sooner. So consider using that monthly payment to boost your savings or retirement accounts if you can.

Goal #3: I’m struggling financially and need the relief.

So many borrowers have experienced job loss, wage reduction, or are working less hours. That means less money to do the basic things like pay for health insurance, pay rent/mortgage, keep the lights on, and put food on the table. It also means the financial pressure of student loans can be crushing. Take advantage of not having to make payments to your federal student loans through the end of the year. Dept of Ed owned loans aren’t accruing interest right now so although your loan balance won’t be going down, it also shouldn’t be increasing.

Goal #4: I want to pay off my student loans ASAP.

As long as you’re not pursuing loan forgiveness and your financial position is strong, making payments now can help you pay off your loans even faster. A 0% interest rate on federal student loans means your payments will be going to principal and paying down your balance even faster. One thing to watch out for is refinancing; you can’t beat 0%. You can consider refinancing after the temporary relief expires. This relief doesn’t apply to private loans so you can look into refinancing those now.

Helpful Links

Coach Q&A: What is Income-Driven Loan Forgiveness?

5 Tips for Choosing Teacher Loan Forgiveness or Public Service Loan Forgiveness

Coach Q&A: Public Service Loan Forgiveness Pitfalls

CARES Act Help for Student Loan Default

Federal Student Aid Coronavirus Information for Students, Borrowers, and Parents