ATTENTION ALL STUDENT LOAN BORROWERS: Do you know what is actually going on with your student loan debt right now? Sure, maybe your payments were paused as part of the CAREs Act that the U.S. Government signed into law at the end of March but are you really paying attention to what’s happening to your debt or what could happen? In this article, we will look at the top 5 things you need to know about your student loan debt during this pandemic.
5 Things You Need To Know About Your Debt
#1. Federal loan payments are paused until September 30th, 2020 but what if you still want to pay?
Regardless of the $2.2 trillion stimulus plan that is pushing off the payments of qualified federal student loan debt, you can still pay your student loans if you want to. During the six-month pause period on payments, interest is not allowed to accrue so this means your student loan balance will remain at the same amount during this six-month period.
However, if you are in a good spot financially as in you have your emergency fund set up, aren’t living paycheck to paycheck, and can afford to continue to make your student loan payments… go for it!
Now is one of the best times to continue to pay down your student loan debt since there is no interest, therefore your full payment will be going towards the principal balance.
For example, let’s say you have $100,000 in student loan debt with a 5% interest rate over a term of 10 years. Let’s use this handy-dandy Bankrate calculator to look at this student loan monthly payment:
So first off, just to point out that in this specific situation, the borrower would be paying an extra $27,278.62 back to the borrower just in interest.
This snapshot shows us what a monthly payment would normally look like. Your monthly payment would be $1,060.66 and $643.99 of that would be going towards the principal meaning paying down the $100,000 you originally borrowed and $416.67 of that would be going towards that roughly $27k in interest owed to the borrower.
This means that almost 40% of your monthly payment is going towards interest!
That said, during this time when your interest rate is changed to 0% until September 30th, 2020 it means 100% of your payments will be going towards paying down your actual principal (so the $100k borrowed in the example). This means you can actually pay down your loans faster and will end up with a much shorter loan period than if you did not pay.
Again, only do this if you have the means to. Don’t stress too much and look under your couch cushions for some money to put towards loans but if you have it, you will definitely benefit by paying those loans down.
#2. If your loans are still being taken out of your account every month, then your federal loan may not qualify.
The temporary six-month pause on student loan payments and interest were automatic. This was mandated by the Government so no student loan company was legally allowed to collect repayments unless the borrower elected to continue making payments (by calling or emailing in their customer service line).
If your loans are still being taken out of your account and you thought they would have been paused it could mean two things.
- 1. There is a mistake and you need to contact your student loan company immediately
- 2. Your federal student loan doesn’t actually qualify for this current pause on repayment.
For those who fall is to the #2 category, the CARES Act signed into law actually excludes borrowers who have Perkins Loans and also any borrowers who have FFEL loans (Federal Family Education Loans). These two programs don’t exist anymore however some borrowers who are still repaying might have these.
To be sure what kind of student loans you have, just ask your student loan company and they will happily provide you this information or point you to the right area of your online profile that will have that information ready for you to view.
Side note: Private student loans do not qualify for the six-month delay in student loan repayments.
All that said, regardless of the type of loan you have, if you are struggling to make your monthly payment be sure to contact your student loan provider and see if there are any options for you. For example, if you lost your job you can apply for an income-driven repayment plan that will allow you to pay as much or as little off towards your loans based on your monthly income. You can also apply for forbearance which will either reduce your monthly payment or eliminate it for a certain amount of time to help you get back up on your feet again.
#3. Be wary of student loan scams happening due to the pause on student loan payments.
There have been reports recently of scams revolving around student loans. Some of the scams claim that you have to pay a fee for the temporary pause on student loan payments and interest. They will ask you to fill out documents with important information for them to either steal your identity or they will ask you for payment.
If this has happened or is happening to you, then this is a scam. There is no fee for the pause on student loan interest or payments. If you know of any scams like this happening, make sure that you report it to the Federal Trade Commission’s complain assistant here.
Again, if you are not sure what type of student loans you have then just call your student loan servicer and ask them. They will tell you immediately.
#4. If the HEROES Act is signed into law then you may not have to pay back any loans until Sept 30th, 2021.
The HEROES Act was created by the House Democrats and is a roughly $3 trillion plan that if passed, would push your student loan repayments and the pause on interest all the way back until September 30th, 2021. House Republicans haven’t made a decision on the bill yet however one of the biggest reasons for this extension on student loan payments and pause on interest ist he fact that 2020 college graduates are entering into an abysmal job market that only seems to be getting worse.
Additionally, those with private student loans would also get a pause on student loan payments and interest.
The icing on the cake is that this act also proposes forgiving $10k of each borrowers debt if they are economically distressed. Joe Biden has even said that he would forgive undergraduate federal student loan debt for borrowers who attended a public college.
Side note: Biden has recently stated that he believes student loan debt should be allowed to get discharged in the case of a bankruptcy. Currently, if you file for bankruptcy but still have student loans, you technically still have those loans. He wants to get rid of them. Even the Fed’s Chairman, Jerome Powell has commented saying that he doesn’t know of any good reason why student loans aren’t discharged considering other debts are when going through bankruptcy.
Any new cut student loans are actually at a historic low rate of 2.75% interest, this would be for anything disbursed after July 2020. Before this rate, the average student loan interest rate was between 4% – 6%.
The HEROES Act is still not signed into law so who knows what will happen here but it definitely does seem to be gaining traction so definitely keep your eyes out for this in your google alerts.
#5. Your credit score may have gotten screwed up because of this.
If you hold your student loan debt at Great Lakes, one of the larger student loan services, then you may want to double check on your credit score.
Apparently, Great Lakes incorrectly coded credit reporting for roughly 4.8 million student loan borrowers. Instead of reporting that the borrowers paid on time (and just set the automatic payment to $0) instead they reported that they deferred payments which is a negative mark on your credit score.
The company has been working with the main credit reporting agencies (Equifax, Experian, and TransUnion) to make sure that all mistakes are updated and are hopeful that most consumers won’t see any negative change in their score due to this. Great Lakes announced that they “don’t believe their reporting has impacted actual consumer credit scores provided by those agencies.” What Great Lakes is concerned about are those who are checking their credit score with VantageScore as the company includes a deferment as a negative factor in your credit score.
On the bright side, VantageScore announced that the company can change its algorithm to help reduce any potential negative impact associated with deferment.
Right now, they are trying to work through this issue so we are not sure how Great Lakes will be punished however since it is one of the largest student loan providers they will definitely have to make sure a small mistake like that could not happen again.
Great Lakes has stated that they fixed their systems and that all borrower’s information will be reported accurately for May however they are not sure how long borrowers will see the effects of a deferred from April on their credit score.
Side note: President Trump’s administration has proposed an idea where student loan servicers would no longer exist separately, instead it would just be one single platform for all borrowers. This would actually help avoid any of these mistakes in the future.
So if you do have your loans with Great Lakes, be sure to pay close attention to your credit score and make sure they fixed your account. We will be seeing some lawsuits in the near future due to this mistake, for that I am certain.
Whether you were aware of none or all of the five points listed above, please make sure that you are talking about this and discussing them with your peers or those you know who do have student loan debt. It is vital, especially in uncertain times like these, that we stick together and help our neighbors. Afterall, we’re all in this together right?
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