If you have federal student loans, you are probably aware of the Coronavirus Administrative Forbearance being provided by the Department of Education. We thought it might be helpful to clarify a few things about this program.
The forbearance is basically a “freeze” on all your federally held student loans. It allows all borrowers to stop making payments without accruing any interest and with no risk of going into default. All automatic payments have been unilaterally postponed, so if you wish to continue making automatic payments you will need to contact your servicer and let them know.
It’s important to understand how payments will be applied if you choose to make them. The full amount of all payments will be applied to principal once all the interest that accrued prior to March 13 is paid.
If you are in any of the Income-Driven repayment plans (ICR, IBR, PAYE, REPAYE) it is generally not a good idea to continue paying at this time. If you have any accrued interest, which is likely to be the case, you would only be lowering the amount of forgiveness you receive when your term ends. Since this is a time of great economic uncertainty, the skipped payments may be better applied toward emergency savings, other higher interest rate debt, retirement accounts, etc. Contact your mentor if you have any questions about what would be best for you.
If you are in a regular amortized repayment plan like the Standard 10 year, Graduated or Extended plans you may or may not have unpaid interest accrued. Contact your servicer to find out how payment would be applied. Usually, if you are in the Standard 10 year repayment plan you would not have any accrued interest. This is actually an excellent time to decrease the principal and thus the total interest paid on these traditionally amortized student loans. Consider this option only if your other financial goals are in place. Again, check with your mentor if you are wondering whether it would be good for you to continue making payments at this time.
If you are in Public Student Loan Forgiveness, even if no payments are being made, these months of forbearance ARE counting toward the required 120 payments for the Public Service Loan Forgiveness program and the required term for all IDR plans. You must continue to be employed full time by a qualified employer. It is most likely the best course of action for all in PSLF to redirect funds previously allocated to their federal loans to other goals.
If you have lost your job or your income has decreased due to the Coronavirus crisis (or any other reason), you can always update your income and get a new payment amount based on your current income. To do so, visit StudentAid.gov/idr, click on “Apply Now,” and then start the application by clicking on the button next to “Recalculate my monthly payment.” After the administrative forbearance ends on Sept. 30, 2020, your monthly payments will resume at the new amount.
Some Federal Family Education Loans (FFEL) loans are privately held and do not benefit from this forbearance. If you have FFEL loans or Perkins loans that are not owned by the Department of Education, you may be able to consolidate them into a Direct Consolidation loan, but the terms will change permanently and apply after the forbearance ends. Currently, the program is due to expire on September 30, 2020. Don’t let the October payment catch you off guard!
Here is a link to the official information provided by the Department of Education. We will try to keep you informed, but it would be wise to check regularly for updates.
Talk to your mentor if you have any additional questions. Thank you for being a part of 3rd Decade®️!