What To Do About Student Loans During Covid-19

If you’re one of the many Americans with student loan debt, you may be eligible for a period of zero interest on your loans as a result of Covid-19. 

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by congress in March, 2020, federal student loans, or loans funded by the government, will not accrue interest through September 30, 2020. Borrowers don’t have to make any payments during what’s known as a grace period, and won’t incur extra interest on those suspended payments. 

Important note: The grace period does not mean your debt will be canceled. It only means the need for payment will be frozen for a period of months.

As of June 2019, 43 million Americans owed federal student loan debt, amounting to a total debt of $1.5 trillion. 

Who is eligible for the grace period?

The zero-interest period is designed to give borrowers some relief from debt payments as unemployment continues to rise. Since March, 2020, 40 million Americans have filed for unemployment as businesses have shut down in response to the coronavirus.

If you have federal student loans, they’re likely to be eligible. Some federal loans, such as those that are part of the Federal Family Education Loan Program (a program which ended in 2010), are actually held by commercial banks, and are therefore not included. 

There are many different kinds of federal student loans offered by the U.S. Department of Education. Direct subsidized loans are ones received by students who demonstrate financial need while direct unsubsidized loans are not determined by financial need. While the student is in school, the government covers the interest accrued on subsidized loans, but not on unsubsidized ones. Direct PLUS loans cover additional expenses and can be taken out by graduate students, or parents of undergraduates. PLUS loans require a credit check. 

To see if your student loan payments have been waived, check with your student loan servicer. If they do, you won’t have to do anything since the grace period automatically goes into effect.

Private student loans don’t qualify under the CARES Act. Private loans are loans that aren’t backed by the federal government, but rather by private lenders such as banks, credit unions, or state organizations. If you have private loans and are struggling to make payments, consider contacting the lender to see if you can get a break on those payments. Many lenders are extending benefits in response to the pandemic.

What to do if you still can make your payments

If you can, consider continuing to make payments on your student debt. 

When you make payments on your debt during this grace period, you’ll be attacking the principal without having to worry about how your debt is growing with interest. Making payments now could help you get paid off more quickly. If you have multiple student loans, you may also want to take advantage of the zero-interest period by paying off the loans that have the highest interest rate. 

Additionally, if you received or are expecting a federal relief check as part of the CARES Act, and don’t need to use that money for living expenses, think about putting part or all of that money towards student loans. Using that money can help you make more progress on your debt.

A note for current students with debt

Student borrowers who are currently enrolled in college are also likely to get a break. Interest rates on undergraduate federal loans are reportedly expected to drop to 2.75% from 4.53% in 2019. The 2.75% interest rate would be the lowest it’s been in 15 years. (For graduate students, the interest rate on loans will reportedly drop to 4.3% from 6.08%.) 

Student borrowers typically don’t need to begin paying back what they owe until six months after they’ve graduated or left school. The decreased interest rates could save families or students with federal student loans $1,000 per $10,000 in loans over a ten year period.

The news rates, once they’re formally announced, will go into effect in July and apply to the coming 2020-21 school year. The interest rate will remain constant over the period of repayment.

Financial resources related to the pandemic

Remember, your normal payments and interest will resume after September 30, 2020. 

Check out the U.S. Department of Education and the Consumer Financial Protection Bureau, a federal agency devoted to consumer financial help, for up-to-date information about what’s happening with student loans during the Covid-19 crisis.

For other resources, visit our page on navigating your financial life during the pandemic here.