The COVID-19 pandemic has affected nearly every aspect of life on a global scale. As we are forced to observe varying degrees of shelter-in-place and phased reopenings, millions of Americans are out of work and searching for their next paycheck.
If you find yourself in this situation and you have student loan debt, you might be worried about making payments. On the other hand, you may be fortunate enough to make your payments but aren’t sure where to start. Either way, we’ll unpack the latest legislative news and potential paths to navigate this ever-changing environment.
The current situation
On August 8th, President Trump issued an Executive Order to extend student loan payment relief during the pandemic.
The original relief measures provided in the March 27th CARES Act included payment suspension for Federal student loans through 9/30/20. In addition, interest rates on Federal loans were set to 0% during this time.
Instead of these relief measures expiring on 9/30, the latest Executive Order extends the policies through the end of the year (12/31/20). Meaning, interest rates on Federal student loans are 0% and anyone with Federal student loans will not be required to make a payment until 2021.
What if you can’t make your monthly payments?
If you’re struggling to make your payments, the latest executive order grants you a few extra months without having to worry about paying your Federal loans.
But, what if you want to reduce your monthly payment, long-term? After all, your monthly payments become mandatory again beginning on January 1st.
FutureFuel.io developed a free tool for all student loan borrowers called Reassess.
In minutes, borrowers can discover every eligible Federal repayment plan with customized calculations unique to their circumstances. This includes income-driven repayment programs that cap payments at a percentage of your income (from 0-20%). These plans also include loan forgiveness options, which cancel the remaining balance at the conclusion of your repayment term. It is important to note that you’ll have to pay tax on the forgiven balance.
The impact of rightsizing your student loan payments can be staggering. Take, for example, the following statistics that Chime members have saved over the last 3 months by using FutureFuel.io’s Reassess tool:
- Over $4.5 million saved
- $240 average savings per month
- 91% reduction in monthly student loan payment
Remember, pending any new legislation, federal student loan payments will resume again on January 1st. The next few months are critical to understand your repayment options and potentially switch to a plan that will set you up to save long-term.
If you are currently out of work, switching to an income-driven plan could help you lock in $0 payments for 12 months without hurting your credit score.
Private student loans
If you have private student loans, unfortunately, your options aren’t as generous. Private student loan lenders might offer some forms of deferment or forbearance. Each lender may have different policies and timeframes. For example, Sallie Mae offers several deferment options if you’re in school or in a fellowship or residency. The company also offers forbearance for three months at a time for a total of 12 months.
If you have private student loans and can’t afford student loan payments, call your lender right away to discuss your options.
What if you can afford your payments?
With federal loan payments paused and interest rates set to 0%, those that can make payments will significantly shorten their payback period. After all, every dollar sent to federal loans through December 31 is applied 100% to the principal of the loan.
Folks with discretionary income may be inclined to accelerate their paydown by making extra payments. In this case, FutureFuel.io has developed a few tools to help borrowers crush their student debt faster.
Round Up is a feature that sweeps everyday spare change directly to your loans. It’s a budget-friendly way to find extra cash without the burden of a lump sum payment. The average user saves $4,900 in interest and pays back their loan 23 months faster with Round Up. By making payments while interest rates are set to 0%, the positive impact of these additional payments can double.
Giveback is a free browser extension that enables borrowers to earn cash back on everyday online purchases. Harness your purchasing power with brands like Walmart, DoorDash, Instacart, and hundreds more. Earned cash back will be automatically swept from participating brands to your highest interest rate student loan.
And, you can double down by using both tools. When you leverage Round Up and Giveback, users can double the dollars sent to debt.
Dealing with all of the changes going on and trying to manage student loan payments can be stressful. If you feel like you can’t afford student loan payments right now, take action today. There are options available that can put your payments on pause or make payments more manageable, so you can avoid going into delinquency or default during this difficult time. If you’re able to comfortably make payments, consider the impact of sending extra dollars to debt to speed up your payback horizon.