How to Get Student Loan Relief in the U.S. During COVID-19

COVID-19 has caused major disruptions around the world. Beyond the wider difficulties brought on by the virus, many people have been laid off, leaving them in severe financial hardship. For those who have not lost their jobs, they may be spending more than usual to support family members or cover other unexpected expenses.

For this reason, the U.S. government announced the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, in March 2020. The law allowed student loan repayment in the U.S. to be paused for six months and set interest on student loans at zero during that period.

That six-month window was later extended by three months, meaning graduates could receive student loan relief through December 31, 2020.

Who Can Receive Federal Student Loan Relief?

It is important to note that this student loan relief applies only to federally held loans. This means that people with private loans and certain other types of loans will not benefit from this temporary forbearance and must continue making student loan payments as usual.

Student loans covered by the CARES Act include:

• Federal Direct Stafford Loans
• Federal Direct Graduate PLUS Loans
• Federal Direct Parent PLUS Loans
• Federal Direct Consolidation Loans
• Federal Family Education Loans (FFEL) held by the federal government

Student loans not covered by the CARES Act include:

• Private student loans
• Private parent supplemental loans
• FFEL loans serviced by commercial lenders
• Perkins Loans

To check whether your loan qualifies, look at the loan holder in your studentaid.gov account. If the Department of Education is listed, you will receive these benefits.

However, if your loan is not covered by the program, do not worry. There may still be a way to benefit from this type of student loan relief.

If you have Federal Family Education Loans or Perkins Loans, you may be able to combine multiple student loans into one and obtain this student loan deferment by taking out a Federal Direct Consolidation Loan.

What Is a Federal Direct Consolidation Loan?

A Federal Direct Consolidation Loan is a new loan that makes it easier to manage your student loans by putting them all in one place. It also allows you to access government student debt relief.

This loan is available to people who have certain Federal Family Education Loans or Perkins Loans, and it is free to apply for. Unfortunately, private loans are not included.

A Federal Direct Consolidation Loan combines all of your separate federal education loans into one. By doing so, you can qualify for student loan payment suspension and, when you start repaying again in 2021, you will only need to make one monthly payment to one loan servicer. This should make it easier to manage your money.

To consolidate your loans, go to studentaid.gov.

Benefits of a Federal Direct Consolidation Loan

So, should you get a Federal Direct Consolidation Loan? Here are some of the benefits.

Deferred Payments

You will benefit from the government’s CARES Act and not have to repay any student loans through December 31, 2020, giving you a much-needed break from loan repayment.

Interest Waiver

Under the CARES Act, if you have a Federal Direct Consolidation Loan, you will not pay any student loan interest until 2021.

Alternative Repayment Plans

Most student loans are paid off within 10 years, but a Federal Direct Consolidation Loan can extend that repayment period to 10 to 30 years.

This means your monthly student loan payment will be lower, but because of the added interest, you may end up paying more overall.

The loan also gives you access to several repayment plans, including:

• Standard Repayment Plan. You pay a fixed amount each month to ensure your entire loan is paid off in 10 to 30 years.
• Extended Repayment Plan. Payments are fixed, or start low and increase over the life of the loan, usually 25 years. Borrowers must have more than $30,000 in outstanding Direct Loans to qualify.
• Revised Pay As You Earn Repayment Plan (REPAYE). Monthly payments are 10% of your after-tax income, and any remaining balance is forgiven after 20 or 25 years, depending on your situation.
• Income-Based Repayment Plan (IBR). Monthly payments are 10% to 15% of your after-tax income, depending on when you received the loan. Any remaining balance is forgiven after 20 or 25 years, depending on when you took out the loan, but you may have to pay income tax on the forgiven amount.
• Income-Contingent Repayment Plan (ICR). Monthly payments are 20% of your after-tax income, or a fixed payment adjusted to 12 years of repayment based on your income. After 25 years, any remaining balance is written off.

Loan Forgiveness

Under the REPAYE, IBR, and ICR plans explained above, your student loan will be canceled after a certain number of years, usually 20 to 25 years depending on various factors.

However, you will be repaying a percentage of your income each month, so your monthly payment may be higher than under a fixed plan, and you may need to pay income tax on the forgiven amount.

You should contact your loan provider for more information.

Other Ways to Benefit from Loan Relief

If you do not qualify for a Federal Direct Consolidation Loan, or decide not to get one, and you are not eligible for government CARES student loan relief, there may still be several other options available to you.

Even if you think you qualify, make sure to check with your student loan provider, since each loan will have different terms.

Relief for Income-Based Repayment Plans

If you are on one of these income-driven repayment plans and your income is currently below 150% of the poverty line, you will not need to make any monthly payments.

If you have lost your job or your income has dropped and you think you may qualify, contact your student loan servicer to let them know and find out the next steps.

Relief for Federal Family Education Loans

In addition, if you have Federal Family Education Loans, you may be eligible for economic hardship deferment, unemployment deferment, forbearance, and income-driven repayment.

Contact your loan provider to learn more.

Relief for Private Loans

Many private loan providers are offering forbearance or partial forbearance options during the pandemic, which suspend students’ smaller repayments for a period of time. It is worth checking with your loan provider to see what they offer.

However, be aware that in most of these plans, interest will continue to accrue on the outstanding amount, and it will be added to the total loan balance.