How To Manage Your Student Loans In The Coronavirus Crisis

We are in unprecedented times right now, as much of the country goes into near-lockdown mode and the economy grinds to a halt while the Coronavirus spreads. There is no playbook for the current situation, and we don’t know how all of this is going to turn out.

In the midst of this crisis, 44 million Americans collectively carry around $1.7 trillion in student loan debt. And absent decisive action by President Trump and Congress, student loan payments will continue to be due.

Now is not the time to panic. Rather, it is the time to assess your situation, and figure out a plan of action for managing your student loans. Here are some options for student loan borrowers as the Coronavirus crisis deepens.

Deferment and Forbearance

Deferments and forbearances are programs that allow borrowers to pause payments on their student loans but remain in good standing during times of economic hardship. In general, federal student loans have significantly more generous payment deferral options than private loans; you may have several years of economic hardship deferment or forbearance available over the course of a federal student loan’s repayment term, compared to a year or less for private loans.

Typically, interest still accrues on all student loans during a deferment or forbearance, except for certain subsidized federal student loans. However, President Trump recently announced an interest freeze for government-held federal student loans. This means that, in theory, interest should not accrue on those loans during a deferment or forbearance (although the freeze has not yet been implemented, so it’s too early to know for sure). The interest freeze does not, however, apply to other student loans such as private loans, Perkins loans held by schools, and FFEL-program loans held by guaranty agencies.

Switch to Income-Driven Repayment

Income-driven repayment programs are available for many federal student loan borrowers. Borrowers can repay their loans using a formula applied to their income, and their payments get recalculated annually. If the borrower stays in the program long-term, they may eventually be eligible for loan forgiveness if they have not paid off their loans in full (although this could potentially be a taxable event at the end).

Federal student loan borrowers who are currently not in an income-driven plan can apply to switch into one of these plans due to changed circumstances (such as job loss or a decrease in income). Income-driven repayment programs may be better solutions in this type of hardship situation than a deferment or forbearance, since the plans are renewable year after year. Furthermore, most of these programs allow borrowers to pay as little as $0 if they are earning less than 150% of the poverty limit for their family size.

Recalculate Payments Under an Income-Driven Repayment Plan

Student loan borrowers already on an income-driven plan can request a recalculation of their monthly payments at any time due to changed circumstances, such as job loss or a reduction in income. So if your monthly payment is based on your current income at your job (or last year’s tax return), and then you lose your job or experience a reduction in earnings, you can simply submit a new application now to recalculate your monthly payments based on your current circumstances. Recalculating your payments may be preferable to going into a deferment or forbearance because it keeps you on track for eventual loan forgiveness and avoids other negative consequences of leaving the program, such as interest capitalization.

Hardship Modifications for Private Student Loans

Private student loans generally have fewer options than federal student loans do during times of hardship. There usually is no income-driven repayment program, and deferments and forbearances are much more limited.

However, some private student loan lenders will temporarily modify and reduce monthly payments based on financial hardship. These modification programs are largely discretionary, which means that most borrowers do not have a contractual or statutory “right” to a change in their their loan terms; rather, the lender gets to decide whether or not to allow a reduction in payments. In some cases, a temporary reduction in payments may lead to higher payments later when the temporary modification ends, so make sure you understand the terms and consequences of your modification.

Contact Your Elected Officials For Suspension of Payments

Currently, President Trump has not announced any payment moratorium on student loans. This means that monthly payments on all student loans continue to be due. It also means that involuntary collections by the federal government for defaulted student loans — such as through wage garnishments and tax refund intercepts — will continue.

It will likely take an act of Congress to suspend all payments on federal and private student loans until the crisis passes. Contact your elected officials and ask that they pass legislation granting student loan payment relief.

This article was written by Adam S. Minsky from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.