The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, which the federal government passed in March 2020, has meant that Americans have not had to pay interest or make payments on federal student loans for nearly 2 years. Many borrowers have been able to defer federal loans, cares act provider relief funds have allowed them to avoid financial hardship and avoided missed payments.
However, the loan payments will become due again at the end of January 2022. You should now make a repayment plan to be ready for your next bill.
Option 1: Student loan forgiveness
After the coronavirus pandemic became a national emergency, Congress passed the CARES Act. Federal student loan borrowers are entitled to forbearance. This temporary relief allows them to avoid paying interest, but they still have to pay the monthly payments. The CARES Act does not require interest payments and requires no payment.
You should investigate your cares act provider relief funds now if you believe you might be eligible for student loan forgiveness. This will allow you to make sure that you meet all requirements once you resume payments.
Who is eligible for Federal Student Loan Forgiveness or Discharge?
- Public servants who work for the government or people who work for certain types of non-profit agencies that have received 120 qualifying payments
- For-profit colleges and educational institutions that closed their doors while students were still in school, or shortly thereafter, have defrauded many people.
- Teachers who have taught in low-income schools for five years consecutively are known as “low-income teachers”.
- Persons who are permanently and totally disabled
President Joe Biden issued a temporary waiver in October to allow those seeking PSLF to count certain payments which were not eligible previously, increasing the potential for forgiveness.
To maximize your chances of forgiveness, you need to know exactly how much and when payments should be made. Studentaid.gov has many FAQs and information about eligibility for PSLF.
Option 2: Refinancing
Refinance allows you to take out the remaining student loans from a private lender, or student loan company. This will allow you to repay the federal government and close your loans. Refinancing can allow you to get lower interest rates as they become available. Interest rates change with the economy.
Many students don’t have good credit scores. However, many can build their credit once they graduate. A history of timely payments can improve your credit score and help you to lower your interest rate when refinancing. Your interest rate will not change if you refinance loans with another company.
If you make the same monthly payments, refinancing at a lower rate of interest can help you save money in the long term by decreasing your daily interest. You’ll be paying more of the principal balance each month, which can reduce your interest cost and decrease your time to repay your loan.
Refinances can also be a good option to save money but increase the time required to repay your loan.
Federal interest rates on undergraduate student loans have varied from 2.75% to 6.6% over the past 15 years. During the CARES Act payment pause, all loans are subject to 0% interest. However, once the freeze is over, your loan interest rate will return to the original rate.
Refinancing with private companies can lower your interest rates to 1.88% variable APR (includes autopay discount) if you have excellent credit and history-making timely payments. Depending on the amount of debt you have, even a 1 percent interest rate reduction could save you thousands and help you get out faster.
The pros and cons of refinancing
Refinance federal student loans at a lower interest rate to help you pay down your debt quicker and at a lower cost.
Although the federal government provides some protections to borrowers, it is important to weigh the pros and cons of refinancing with private lenders.
- The interest rates right now are very low. You can lock in a lower interest rate by refinancing before the CARES Act payment pause expires. This will help you save more over time.
- You can reduce your monthly payments to help you save money or pay off your mortgage faster. This will allow you to get rid of debt quicker and lessen any anxiety about it.
- You will lose the federal student loan program benefits, such as forgiveness and income-based repayment plans if you refinance with a private lender. Learn more about the eligibility requirements for forgiveness as well as the protections offered by the federal government at studentaid.gov.
- You’ll pay interest sooner if you refinance before the payment freeze expires.
Option 3: Consolidation
You may be eligible to consolidate multiple federal student loans. Consolidating loans combines all your debts into one payment at an interest rate equal to the average of your other loans.
Consolidating is preferred over refinancing because it lowers your monthly payments and does not lose some protections, such as potential Public Service Loan Forgiveness. If you consolidate, any interest that is still outstanding will be added to your principal balance. This means you will accrue interest on the principal balance. Consolidating loans with different amounts and interest rates may result in higher interest payments. To calculate your total student loan payoff and determine if consolidating is right for you, use the calculator on our site.
- All You Need To Know About Student Loans And The CARES Act Expiration
- How do your Student CARES Act Expiration Student Loan 2021 Repayment Programs Compare?
- Private student loan forgiveness programs
- What’s in the American Covid-19 Rescue Plan?
- 6 Best Ways To Deal With Student Loan Debt: All You Need To Know
Cares Act Plan of Action
Whatever you do, it doesn’t matter what your plan is. It is a good idea to review your budget and finances and to take some time to consider your long-term financial goals.
Are you unsure where to begin? These steps will help you get started:
While interest rates remain at historic lows, you can check your rate for refinancing prior to the end of the year. In just 2 minutes, you can get your rate from your loan provider. Your loan provider has the lowest rates and the most flexible payment options of any private loan servicer. We’ll work with your budget to find the best payment plan.
Consider your options for consolidation and forgiveness. Refinancing may not be the right option for you if you do not meet the requirements for student loan forgiveness. If you are able to lower your interest rates and payments through consolidation, it might be a good idea to keep your federal loans.
You can set a reminder in your calendar to remind you to check-in before the holidays. This will help ensure that you are following through on research and creating a plan. You can damage your credit score and make it difficult to obtain a mortgage loan.
For the next few months, practice making payments by setting aside the amount of your monthly installment into a savings account. These savings can be used as a cushion if you have to stop paying your monthly payments. You could also make a lump sum payment to your loans if you have the funds. This will reduce your principal balance as well as the amount you pay in interest.
What else do you need to know about the CARES Act expiration?
The CARES Act, which provided housing and unemployment assistance, has been a great help to students. However, many of these provisions have expired. Pandemic Unemployment Assistance (PUA), which allowed self-employed individuals to receive weekly unemployment benefits, was an example of expanded unemployment insurance (UI).
The Pandemic Emergency Unemployment Compensation program increased the number of unemployment benefits that people could receive for up to six weeks. Each state had its own approach to providing similar programs.
The CARES Act helped homeowners avoid foreclosure by offering additional mortgage relief options, such as mortgage forbearance, for loans that were serviced by USDA and FHA.
Many people are still in financial difficulty, even though the benefits have ended. You may be eligible for assistance from federal programs if you are experiencing financial hardship. The Consumer Financial Protection Bureau (or CFPB) has resources to help you find counselors who are approved by the Department of Housing and Urban Development. They can assist with questions regarding federally-backed mortgages and other repayment options.
Get Started: Cares act provider relief funds
You don’t have to do it alone. There is still time to reduce your monthly payments and pay off your loan sooner.