If you think you won’t be able to make payments, the time to act is now. (iStock)
The CARES Act has offered federal student loan borrowers a major break, exempting them from monthly payments during the coronavirus pandemic.
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Though President Trump signed an executive order to extend this relief from September 30 to the end of the year, unfortunately, that help is unlikely to become permanent. And if you have federal student loans to your name, you’ll need to start repaying those debts once again after this grace period is over.
If you’re not sure you can resume payments once the coronavirus student loan forbearance period ends, there are options — but the time to sort them out is now.
4 things to do before student loan forbearance ends
The clock is already ticking, so if you have an inkling that resuming your payments might be hard, you’ll need to take action quickly.
According to Amy Lins, senior director of learning and development at Money Management International, being late on payments — or not paying them at all — can be a big mistake. “Skipping payments will result in delinquency or default,” she said. “Defaulted federal student loans carry serious consequences.”
To prevent this, you’ll want to:
1. Take stock of your budget
The first step is to review your budget. Add up your monthly costs, including your student loan payments, and weigh them against your income. Make sure you have enough cash to comfortably cover your monthly payments when the forbearance period ends.
If you’ve had your earnings cut due to the pandemic or you’ve been putting the cash you typically use toward your student loans elsewhere, you may need to find ways to pare down your monthly costs to make room.
STUDENT LOAN DEFERMENT VS. FORBEARANCE: WHAT'S THE DIFFERENCE?
2. Consider one of the many federal repayment plan options
The federal government offers a number of repayment plans you can choose from if making your monthly payments looks impossible.
Income-based repayment plans allow you to make payments based on your actual earnings — usually between 10% to 25% of what’s considered your discretionary income. There are also extended and graduated payment plans, both of which can lower your monthly payments and make repaying your debts more manageable.
“Federal student loan borrowers have several options if they’re struggling to make their payments,” said Leslie Tayne, founder of the debt relief law firm the Tayne Law Group. “At any time, you can change your repayment plan.”
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3. Consolidate your loans
If you have several student loans to your name, you might consider consolidating them — or rolling them all into a single, new loan. On federal loans, this can be done through a Direct Consolidation Loan. These loans are fee-free and are offered through the Department of Education’s Office of Student Aid.
“Consolidating your federal loans will simplify your bill pay and could potentially lower your interest rate,” Tayne said. “You can also consolidate your federal loans into a private loan to get a lower interest rate, but you will lose the protections of federal student loans, and there will be fees associated with consolidating.”
If you decide debt consolidation is the right step, it’s important to shop around for the best type of personal loan, rates and terms. Fortunately, Credible makes it easy to compare loan rates and companies.
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4. Contact your student loan servicer
Ultimately, if you’re concerned about making your monthly payments, contact your loan servicer, as they may have other options for you. This might include deferment or forbearance, which can pause your payments temporarily if you’re facing financial hardship.
“Have a conversation with your servicer and find out your options,” Tayne said. “It’s essential to maintain communication with the loan servicer, and if you don’t understand your options, ask for additional assistance.”
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The final word
Remember: the CARES Act and its payment relief only apply to federal loans. If you have private student loans and can no longer afford your payments, you may want to refinance and take advantage of today’s lower interest rates.
Be sure to shop around, though. Rates vary from one lender to the next, so use a tool like Credible to compare your options or view rates tables.
You should also use a student loan refinancing calculator to estimate your new payments and make sure the move is worth it.
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