You’ve got questions, we’ve got answers. During our webinar about the Impact of Coronavirus on Paying for College, participants asked dozens of questions. Here are the answers to questions on student loans and the coronavirus pandemic.
Daughter in grad school. Considering taking a loan now while rates are low, then re-pay when market recovers and 529 isn’t down so much. Want to conserve available cash now since job security is iffy. Does this make sense?
If you are still working and you have not lost your job, make sure you have an emergency fund with at least half a year’s salary. You’re going to need enough money to live off of if you lose your job.
You can take a qualified distribution from a 529 plan to repay up to $10,000 in student loans each for the beneficiary and the beneficiary’s siblings. The $10,000 limit is a lifetime limit per borrower, regardless of the number of 529 plans. You can change the beneficiary of the 529 plan to the parent and then use the 529 plan to repay the parent loans as well.
Given that interest rates are really low right now, you might want to keep the fixed-rate student loans for as long as possible, not just to conserve available cash. Interest rates are unlikely to be this low ever again.
If they approve the 3-year deferral for 2020 college grads, does the interest still accrue in the mean time?
The COVID-19 Graduate Relief Act would establish a new deferment for 2020 college graduates, suspending the obligation for borrowers to repay their federal student loans for up to three years.
Normally, the federal government pays the interest on subsidized loans during a deferment and the borrower remains responsible for the interest on unsubsidized loans. The interest on unsubsidized loans is capitalized at the end of the deferment period by adding it to the loan balance.
The legislation, however, is ambiguous as drafted. It does not state that interest does not accrue and it is placed in a section of the Higher Education Act relating to definitions (20 USC 1088) as opposed to the sections that concern deferments, 20 USC 1078(b)(1)(M) for FFELP loans and 20 USC 1087e(f) for Direct Loans.
The COVID-19 deferment is in addition to the payment pause and interest waiver on federally-held federal student that ends on September 30, 2020. The new deferment appears to apply to all federal student loans, not just those that are held by the U.S. Department of Education.
Do you see realistic likelihood of further loan forgiveness especially for health care workers (like resident doctors with large medical school loans}?
Doctors and nurses are doing an incredible job. There are calls for them to get some sort of financial relief, such as forgiving their student loans. But, some doctors have paid off their student loans long ago, so it might make more sense to give them a bonus that they can choose to use to repay their student loans or for other purposes.
There was a proposal for up to $10,000 in loan forgiveness on federal and private student loans, but it was not included in the version of the CARES Act that was enacted by Congress.
