If you (or your children) have US federal student loans in repayment, contact your provider to confirm your loans qualify and then stop your monthly automatic payment withdrawals through September 2020.
Here’s why: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on 3/27/2020. Among many other things, the bill automatically waives interest and defers the payments on most direct federal student loans for April 2020 through September 2020. Charging no interest and (passively) not requiring a payment will be automatic for these six months.
Unfortunately, you will need to act promptly because, so far, what it does not appear to do automatically is stop the monthly deductions from your bank account. You will proactively need to reach out to your loan servicer to do that.
**(4/1/2020 Update: At least one major student loan servicer, Nelnet, claims on their website that they will be doing this automatically. Since April payments are coming up very soon, I still might manually stop your automatic payments through their went for now out of an abundance of caution and set reminder to restart them in Sept for October, just in case. Other loan servicers may or may follow suit. )
Most people with these loans should contact their loan servicer by phone or online, as soon as possible. Have them re-confirm that your loans qualify (not private, not a commercially held Federal Family Education Loan (FFEL), etc.) and then to stop those payments for April through September.
If your income has been already reduced or eliminated, not making student loan payments for 6 months may not be a panacea but it can at least help by reducing your monthly expenses.
Income not affected so far? You should still probably do this because these deferred payments are a bit like getting a zero-interest, long-term loan equal to 6 months’ worth of your student loan payments and there is very little financial downside.
If things do develop in unexpected ways regarding your income later this year, reduced monthly expenses can help you respond flexibly to change. And having had lower monthly bills may have also provided you with a rare opportunity to build up a larger emergency fund during the months when your earnings were still normal.
If you’re making enough from your work, unemployment benefits, etc. that you can afford it, try setting up an automatic monthly transfer into a savings equal to your usual loan payments.
Because no interest will accrue during these months, there is no direct financial cost to you for this extra financial flexibility. You would pay off the loan 6 months later, but it doesn’t cost you any extra. The provision also indicates that loans will not be reported to credit bureaus as late while you take advantage of this program.
If your income situation remains solid in October 2020, you can choose then between keeping a larger emergency fund or making a big student loan payment in October (telling the servicer to direct the extra $ specifically towards the principle of your highest rate loans).
For governmental and non-profit workers who are pursuing Public Service Loan Forgiveness (PSLF), this looks especially favorable because the guidance so far is that these 6 months would still count as 6 payments towards the 120 qualifying monthly payments you need to make get loan forgiveness under PSLF. (This is topic is mentioned on page 334 of the law in section 3513, part C).
I have not seen clear information yet on how they plan to handle or waive the PSLF working full-time requirement for those who are un- or under-employed during these months. It’s probably best to expect a smidgeon of uncertainty, logistical clunkiness, and to keep an eye out for more forthcoming details or developments regarding all of this.
Private student loans will not be included but many private lenders are offering some form of accommodation to help impacted borrowers.
If you have commercially held FFEL loans that do not qualify, you may or may not be able to consolidate it with a direct federal consolidation loan to make the loan eligible depending on the details of your loans. Check with your lender or a financial planner who has expertise regarding student loan repayment planning to verify your options.
So who might want to not do this? Offhand, my main thoughts are:
People who are of in the middle of something like being underwritten for a mortgage or other significant financing should definitely consider checking with their lender to see if this will impact their potential financing in any way.
People who, pretty much hate their accursed student loans with the fire of 10,000 suns, have a very secure income (even in these unpredictable times), 6 months’ worth of expenses or more in their emergency fund, and would feel needlessly stressed out at the notion of delaying, even by 6 short months, the process getting these damned loans paid off as soon as humanly possible.
For those who have a history of spending $ they meant to set aside for savings, I caution you in particular to set kind, easy to achieve goals for yourself. Goals like that can help set you up for feeling and being successful. If your past experience with this kind of saving strategy is iffy, maybe don’t make your goal to save 100% of the payments you would normally have made. It could be stressful and counterproductive for you. Consider setting a much smaller goal and then maybe you can feel extra good when you blow your goal out of the water.
If you want recommendations tailored to your specific circumstances and concerns, consider consulting on an hourly or ongoing basis with a qualified, fee-only financial planner, who does student loan repayment planning (not all planners do).
XY Planning Network (https://www.xyplanningnetwork.com) is an excellent place to search online for a financial planner who does virtual meetings and is likelier than average to do student loan planning because network members focus on serving Generation X & Y clients. I know this because I am, quite proudly, a member of XYPN myself.
Please note that the thoughts here are based on preliminary information as of 3/31/2020 that may still evolve or change and are not tailored to anyone’s particular situation.