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Student loans during coronavirus: Should you take forbearance and other questions about payments

Twenty/20

As the economic fallout from the coronavirus continues, legislators have put together several relief packages aimed to address the needs of student loan borrowers. More than 45 million Americans are currently grappling with student loan debt, and monthly repayments can be steep: The average monthly payment for graduates was nearly $400 in 2019. 

Earlier this month, the Department of Education announced that all borrowers with federal loans would have their interest rates automatically set to 0% for at least 60 days. The change went into effect retroactively on March 13, which gave borrowers with federally held student loans the option to request a temporary forbearance, meaning they can suspend student loan payments for 60 days.

Now Congress has passed a $2 trillion stimulus bill that, once President Trump signs it, would extend this time frame as long as six months

When choosing the best course of action for your student loan repayment, you'll want to weigh the pros and cons of each option based on your situation. Here are a few things to consider as you proceed.

Forbearance is 'actually a great option' for many right now

Experts often advise against requesting forbearance because interest still accrues during this period. That adds to the total debt when loans enter into repayment again. However, with new zero-interest rules also in place, this temporary suspension could provide a great deal of relief as Americans brace themselves for what will likely be a rough couple of months.

"Normally we don't like forbearances because they accrue interest, and therefore leave students in worse shape than when they started," says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. "Now, because of the 0% interest rate, it's actually a great option if someone has been financially impacted by the pandemic."   

The coronavirus has already triggered a record-breaking increase in unemployment and left 3.28 million Americans jobless. This number is expected to increase in the coming weeks.

"The bottom line is that if you're financially impacted and you can't afford to make the payments and pay your rent or feed yourself, take the forbearance," says Mayotte. 

How to suspend your student loan payments

Whether or not you decide to suspend your payments will depend on a number of factors. You'll want to think about how much you owe, the amount you pay each month, and if that money could be better put to use to cover your living expenses. 

It's also important to know whether your loans are private loans or federal loans. Private student loan borrowers are not eligible for federal relief packages. However, if you fall within this category, check in with your lender to see if they've put any measures in place to allow for late payments or postponements. 

If you haven't been keeping a detailed record of your loans, there are two ways to find out if your loans are federally held:

  • Call your student loan servicer and ask them
  • Visit Studentaid.gov and verify that the Department of Education is listed as your "lender"

If your loans are federally held, you'll have to visit your individual student loan servicer's website, or call in, to request the suspension. 

Remember, though, that a postponement is not a cancellation. Eventually, your student loans will enter back into repayment. If you do opt for the forbearance, use the opportunity to not only give yourself a little breathing room, but also to figure out what your repayment game plan once your loans start up again. 

VIDEO2:3902:39
Paying off your student loans with Michael Torpey

Video by Ian Wolsten

Make extra payments if you can 

If your financial situation hasn't changed in response to the coronavirus, though, you may want to take advantage of these changes to get ahead on your debt repayment. Can you continue making your payments? If so, it's in your best interest, experts say. And, if you can take it a step further, making extra payments will help you out down the line. 

"If you haven't been financially impacted by the pandemic, it's an opportunity to make some payments," says Mayotte. "This way,  you end up paying a small part of the loan off, interest-free, which can be a really smart thing, financially." 

Student loan interest typically accrues on a daily basis. Paying off your loans while they aren't accruing interest will lower your principal balance and therefore decrease the total amount that you pay over the entire life of the loan. 

"Before all of this happened, we were making a lot of extra payments towards our loans and getting them paid off," says Whitney Sinecoff, a Virginia-based caretaker who has just over $57,000 in private and federal student loans combined. "I actually just paid off one of my $10,000 loans on March 6, and then everything started to fall apart within the last week or so."

Sinecoff says that she plans to stop attacking her loans aggressively but will make the minimum payments. 

"As long as we are gainfully employed and able to make the minimum payments, we will probably go ahead and do that and save loan suspension for when we are in crisis mode," says Sinecoff.

Prioritize your emergency fund  

Even if your financial situation is pretty stable, you may still want to consider postponing your student loan payments and applying that money toward starting or building up your emergency fund, Mayotte suggests. 

Having an emergency fund to fall back on is essential, especially as businesses close or cut back on staff. For many student loan borrowers, pausing payments could be an opportunity to prioritize saving for one.

Most Americans are not prepared to be out of work for an extended amount of time. Over half, or 54%, of Americans say they're not financially prepared to handle a contagious disease like the coronavirus that may limit their ability to work for a few weeks, according to a recent survey conducted on behalf of Prudential of over 2,000 U.S. adults.

Experts recommend you save enough cover 3 to 6 months' worth of living expenses, including rent, groceries, and utilities. Start with whatever you can, though. Putting away $1,000 can be a significant achievement and, later, you may find, a huge help. 

The most important thing, says Greg McBride, chief financial analyst for Bankrate, is to begin saving whatever you can. "There's the destination, and then there's the starting point," he told Grow last year. "The destination is enough to cover six months worth of expenses, and that in itself is a moving target."

"Ultimately, we don't know how this is going to shake out," says Mayotte. "For some, it may make sense to throw more money at building up their emergency fund during this time." 

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