The Coronavirus has had wide impact on the American society spanning from loss of employment to lower gas prices to modified college classes. On March 27, 2020, when the president signed the CARES Act into law, it was meant to provide broad relief for many groups of citizens whose lives and lifestyles have been impacted by the Coronavirus (COVID-19). Student loan borrowers were amongst those many groups in which the CARES Act was meant to provide relief. However, provision from the CARES Act only effects those borrowers who have federal student loans. Those of you having private loans are not covered by the cares act. Private lenders may have their own type of relief available, but it is not required of them to make provision. Now, as a federal loan borrower you may have the opportunity to postpone payments for a brief time, but you may want to weigh the benefits of doing so if you are capable of keeping up with your payments.
March 13, 2020 marked the first day that federal student loan borrower’s payments temporarily ceased. Due to the COVID-19 national emergency, students carrying federal loans were automatically placed in an administrative forbearance. This specific type of forbearance allows you to temporarily stop making your monthly loan payments due solely to COVID-19. The temporary suspension of payments is scheduled to last until September 30, 2020. In addition to the short-term payment deferral, the CARES Act established a 0% interest 
period. For the same timeframe of March 13th through September 30th, the interest rate on certain loans was set to zero. The provision of 0% interest is only for federal student loans owned by the U.S. Department of Education (ED). Those include Direct Loans, FFEL Program loans, and Federal Perkins Loans that are defaulted and non-defaulted. Only defaulted HEAL loans will have the interest rated reduced to zero. The U.S. Department of Education announced that Department-contracted private collection agencies were required to cease collection calls and sending letters or billing statements to borrowers. Differentiating loans owned by ED from other types of loans, such as those that are privately owned or owned by the institution you attend, can be a little tricky. You can visit the Federal Student Aid website and login to find out which of your loans are owned by the U.S. Department of Education. The servicer name will start with “DEPT OF ED” if it is owned by ED. Otherwise, it is not owned by ED and you can expect that your loans will not have the 0% interest provided by the CARES Act. If you have a loan not supported by ED, you can check with your servicer to find out if they are providing any relief during the COVID-19 national emergency. The Federal Student Aid website provides a list of loan servicers owned by ED. You can click here to see the list or call Federal Student Aid Information Center at 1-800-433-3243.
While I am on the topic of speaking to your service providers about additional relief during this time, I would be remiss not to mention that only federal loan borrows are covered by the CARES Act. Other types of loans such as those owned by private lenders or by the institution you attend may not automatically defer your payments or offer a 0% interest rate during the March through September COVID-19 national emergency time period. You might ask what makes these loans different. Simply put, federal student loans are those that are administered by the U.S. Department of Education (ED). The U.S. Department of Education own, may reinsure or be responsible for federal loans. These would include Direct Loans (subsidized, unsubsidized, PLUS and Consolidation) and some FFEL (), Perkins and HEAL (Health Education Assistance Loan) loans. The non-federal private loans come from a wide range of sources. They may originate from and are owned by banks, credit unions or other financial institutions such as credit card companies, like Discover. Also, be aware that some of the older loans that may have started out as ED owned loans could have been sold to private lenders and a
re now being serviced by them instead of the Department of Education. You will want to contact your servicer to verify. Many of the institutions you attend, like your colleges and universities, may also offer loans. Some Perkins loans, no longer offered as of 2017, was a popular loan offered by many educational institutions. If you have a private loan for school, do not assume that you are receiving the same COVID-19 relief benefits as federal loan borrowers. Make sure to contact your loan servicers to discuss relief they may provide for COVID-19 hardships. Unfortunately, the Federal Student Aid website does not have a comprehensive list or private lenders, but you can check your most recent communication or billing statement for your loan payments to find the lender. There is a possibility some private loans are able to take advantage of the 0% interest rate. FFEL and Federal Perkins loans not owned by ED can be consolidated into a Direct Consolidation Loan, which does qualify for the 0% interest provision. But realize that after September 30th, when the CARES Act relief expires, you will be paying the interest on your loan again and it could be higher than your current rate. There could be other consequences of consolidating into a Direct Loan. Check with your service provider to understand what those might be.
Now for those whose federal loan payments were automatically deferred, some of you may want to consider how this is an opportunity for you and your finances. Although payments were automatically suspended, borrowers can choose to continue to make payments during this time. You may be fortunate enough that you are not experiencing a hardship and can afford to continue your payments. Consider how moving forward with the deferment will only prolong the time frame of your payments. Alternatively, continuing to make payments during the deferral period, you have the opportunity to pay down the principle. Since you would essentially have 7 months of interest free payments, from March to September, your entire payment will be applied to the principle. That is something to really think about – prolonged payment period versus paying down the principle. Which of these scenarios would benefit you and your finances the most?
Always think smart, plan wisely and be Centsable about your dollars!
Information for this article came from the Federal Student Aid and Investopedia websites.
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