The government response to COVID-19 presents a major opportunity for holders of federal student loan debt. Several government actions, including the recent CARES Act, have produced the positive outcomes of suspension of loan payments, stopped collections on defaulted loans, and instituting a 0% interest rate. Currently these initiatives are available for many federal student loans (sorry to those with private student loans!) through Sept. 30, 2021.
What student loan incentives are available to me?
In this blog post I highlight what I believe to be the three best initiatives for student loan borrowers.
#1 – Suspended Payments and 0% Interest
Arguably the most important measures listed above are the temporary suspension of payments and the lowering of interest rates to 0% for many loans owned by the Department of Education. This is a massive relief measure and a huge planning opportunity for you. Not only does this offer relief from the feeling of your loan ballooning during a pandemic, but also creates a rare opportunity for the full amount of your payments counting toward the reduction of loan principal once all the applicable fees and interest are paid. In other words, there is an opportunity to pay down the loans faster. This strategy might not be a good fit for all borrowers (depending on their goals), but for those it is, this little perk is fantastic!
#2 – 0% Interest for those Currently in School
You might have heard of subsidized and unsubsidized student loans. If not, check out this post. Long story short, direct unsubsidized loans accrue interest while you (or your student) is in school. The good news is interest on these loans has also been temporarily lowered to 0%, lowering the overall cost of borrowing for college. This is a great opportunity to get out the door with a degree for a lower price-point.
#3 – Suspended Payments still count toward PSLF and IDR Plans
According to the Department of Education, suspended payments can still count toward your eligibility for Public Service Loan Forgiveness (PSLF) when you continue to certify. Suspended payments also count toward Income Driven Repayment (IDR) plan forgiveness. This is incredible! The potential result? The suspension of payments may make it more likely you’ll get student loan forgiveness. If in doubt, your loan servicer or trusted professional can provide additional detail which addresses your personal situation.
If you’re not experiencing the level of relief you need or expect (for instance, if you have loans not owned by the Department of Education), an additional step you can take is contacting your student loan servicer to see if there are any benefits not mentioned here. Never hurts to ask.
It’s important to discuss your future plans with a trusted professional to ensure you’re on the right path. If you’re interested in a student loan analysis, contact us today.
Looking for the full FAQ published by the government? See this website.
Disclaimer: Gradmetrics LLC is a college planning company and does not claim to provide financial advice on investment products. Refinancing federal loans causes the borrower to lose access to income-based repayment plans as well as other incentive programs like Public Service Loan Forgiveness. Gradmetrics LLC is not a debt settlement or debt relief company. We do not provide tax or legal advice.
