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Emergency “stay-at-home” and othe rmeasures taken to slow the spread of the coronavirus could make it challenging for millions of Americans to keep up the monthly payments on their student loans and other bills. Fortunately, there are many options for managing student loan debt if you’ve been laid off or are facing a temporary reduction in your work hours.
Regardless of whether you have federal or private student loans, the first thing to do is contact your loan servicer if you need to adjust your monthly payments. If you can avoid becoming delinquent or defaulting on your student loans, that will go a long way to protecting your credit.
Here are some specifics on the options you may be offered when you contact your servicer, based on the type of loan or loans you’re repaying.
Managing federal student loans
If you’re repaying federal student loans, you’ll often have the right to suspend your monthly payments altogether if you’re unemployed or facing financial hardship. Before suspending payments, you’ll need to put in a request to place your loans in deferment or forbearance.
A temporary interest waiver on federal student loans announced by the Trump administration on March 13 could keep the principal on your loans from growing while your payments are suspended. Keep in mind that older federal loans owned by private investors and Perkins loans issued by schools don’t qualify for the interest waiver.
Look into income-driven repayment first
Before placing your federal student loans in deferment or forbearance, it’s a good idea to look into income-driven repayment plans, which allow you to limit your monthly student loan payments to as little as 10% to 20% of your discretionary income. If you have no discretionary income, your monthly payment is zero, but you’re still considered to be current on your loans, and you get credit toward loan forgiveness.
If you’re already enrolled in an income-driven repayment program, but your income has dropped because you’ve been laid off or had your hours cut, you can ask your loan servicer to have your monthly payment recalculated.
Public Service Loan Forgiveness
You can also request deferment or forbearance without jeopardizing your eligibility for Public Service Loan Forgiveness and other federal loan forgiveness programs, which require 120, 240, or 300 monthly payments in a qualifying repayment plan.
During a temporary relief period ending Sept. 30, 2020, borrowers who have suspended their monthly payments will still get credit toward loan forgiveness or loan rehabilitation.
After the temporary relief period, months you’re in deferment won’t count toward forgiveness. But qualifying payments don’t have to be consecutive, so you’ll still get credit for payments you’ve already made. Once you’re ready to begin making payments again, you’ll continue making progress toward forgiveness.
The biggest drawback of income-driven repayment plans is that they often stretch your payments out longer than the standard 10-year repayment plan. That can mean higher total interest charges, as most borrowers will pay off their loans before qualifying for forgiveness.
If you have private student loans
The terms of private student loans typically don’t provide the same legal right to place loans in deferment or forbearance granted to federal student loan borrowers. But if you’re facing financial hardship, the loan servicers who collect payments on private student loans may be willing to work with you at the lender’s discretion. If you’re granted a discretionary loan modification that reduces your monthly payments, you may end up paying more interest in the long run. The temporary interest waiver on federal student loans does not apply to private loans.
Student loan refinancing
If you can qualify, refinancing your student loans may help you lower your monthly payment by reducing your interest rate. You can also lower your monthly payment when refinancing by extending your repayment term to as long as 20 years. Just remember that extending your repayment term may also increase the total amount of interest you pay.
Rates to refinance private and federal student loans have been falling in recent weeks. But if you’re thinking about refinancing federal student loans, keep in mind you’ll give up borrower protections that can be important during times of economic uncertainty, including access to income-driven repayment plans and the right to place loans in deferment or forbearance.
How to contact your loan servicer
If you have federal student loans, you can log in to the Department of Education’s website for borrowers, StudentAid.gov, to find your loan servicer and details about your loans, including the types of loans you have, the amounts and outstanding balances of each loan, and your interest rates. If you have private student loans, you can take a look at your credit reports or loan statements to find information about your loan servicer.