Options for Student Loans That Aren’t Eligible for CARES Act Relief
Since the Coronavirus outbreak became a global problem, the economy has followed a similar downward trajectory. Millions are unemployed which means they’re struggling to pay rent, car payments and of course, their student loans.
When the CARES Act passed in March 2020, federal student loan borrowers everywhere rejoiced. This bill promised automatic deferment on some federal loans with 0% interest accruing during that time. Millions of borrowers were excited to take a break from their student loans and not be charged interest.
But like countless government programs, there’s a catch: many only found later that their student loans didn’t qualify for the program, leaving them to scramble.
If you have student loans that aren’t eligible for this deferment, there are other options available.
Why Some Federal Loans Aren’t Eligible
If you have a Federal Family Education Loan (FFEL) that is serviced by a commercial lender, it doesn’t qualify for the 0% interest deferment as part of the CARES Act. Remember, this rule doesn’t apply to all FFEL loans, just those provided by a commercial lender.
The FFEL program ended in 2010 so borrowers who graduated around that time may have these kinds of student loans. If you entered college after 2010, you’re likely in the clear. If you’re not sure what kind of FFEL loan you have, look at your online provider.
“In fact, based on data from the Department of Education, there are an estimated 6 million student loan borrowers with federal loans ‘owned by a commercial lender’ who will not receive any help with their student loans at all, despite having used a federal borrowing program,” said Travis Hornsby of The Student Loan Planner.
According to the Department of Education, FFEL loans include Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans and Consolidated Loans. Contact your loan servicer directly to see if your FFEL loans are serviced by a commercial lender.
Other Options for Student Loan Borrowers
If you’re one of the unlucky ones with loans that don’t qualify for this special deferment period, there are other options.
Income Based Repayment: FFEL loans are eligible for different repayment options including the Income-Sensitive Repayment Plan. This plan bases your monthly payments on annual income and has a 15-year term. They’re also eligible for Income-Based Repayment, which limits payments based on your income. Payments are altered every year as income or family size changes. After 20 or 25 years, any remaining balance is forgiven. However, you’ll have to pay taxes on that forgiven amount.
Deferments: FFEL loans are also eligible for the economic hardship deferment program which students can apply to if they’re struggling financially during this time. Borrowers can fill out the form here.
FFEL loans are also eligible for an unemployment deferment, which is separate from the economic hardship deferment. This applies to borrowers who have become unemployed. Borrowers can apply for that here.
Both of these deferment programs provide an initial 12-month grace period. If you still can’t afford payments after the 12 months are up, you can apply again. Even though you won’t be making payments, your loans will stay current. Interest may still accrue unless you have a subsidized student loan.
Use our Cost of Deferment Calculator to evaluates the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance.
Consolidate: Graduates who want to consolidate their loans to be eligible for more options should be aware they’ll be giving up any credit they’ve built up toward loan forgiveness, as under the IBR plan.
Private Student Loans
Many private student loan lenders are offering options to pause payments.
Sallie Mae, for example, says that it is offering its borrowers “a three-month suspension of student loan payments with no late fees, no impact to credit standing, and no collection efforts while the account is in forbearance.” Sallie Mae also offers a loan modification program for customers who experience more severe and/or longer-term hardship.
Currently, there are 10 states that are offering private loan borrowers to postpone payments.
If you have private student loans with a high-interest rate, you can also consider refinancing. This could result in a lower interest rate. Refinancing federal student loans, especially right now, might not be the best idea. Federal borrower that refinance will lose the current option to pause payments with zero interest. Anytime you refinance federal loans, not just now, you lose the option for student loan forgiveness, making payments based on your income, the potential for widespread cancellation, and an option to pause payments if you lose your job or have an economic hardship.
Consider the pros and cons of refinancing private student loans. If you decide it’s for you, Credible can help you compare multiple lenders at once.
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