Coronavirus Student Loan Relief Programs: All You Need to Know

By Javier Simon, CEPF®

Amid the economic fallout sparked by the coronavirus pandemic and the uptick in Americans seeking unemployment benefits, President Donald Trump has eliminated interest rates on federal student loans up until at least May 12, 2020. Federal student loan borrowers can also request that at least two monthly payments be waived within that time frame. But as lawmakers negotiate new relief efforts, there are plenty of student loan relief programs you can access at any time. You can also work with a financial advisor to set up a student loan repayment plan as part of your larger financial strategy.

Due to coronavirus concerns, the U.S. Department of Education has directed loan servicers to grant administrative forbearance to any federal student loan borrower who requests one. These borrowers won’t be required to make payments for at least 60 days as of March 13, 2020. Interest won’t accrue during this time period, and you don’t even need to fill out any paperwork.

So what exactly is forbearance? It allows you to lower or pause monthly payments for a limited time, typically 12 months or less. Under normal circumstances, you’d typically need to prove economic hardship to qualify. But as the rules stand now, any federal student loan borrower is clear to get forbearance that would last up until around mid May. Your servicer may extend it longer.

Moreover, Secretary of Education Betsy DeVos declared automatic suspension of payments for borrowers who are more than 31 days delinquent as of March 13, 2020. This rule also applies to those who become more than 31 days delinquent. The measure stands until further notice.

The Department of Education has also ordered collection agencies to seize garnishing the wages, tax refunds and Social Security benefits of federal student loan borrowers in default. You’re typically in default after failing to make a year’s worth of payments. The Department also prohibits agencies from calling these borrowers or sending them collection notices.

Moreover, the Department of Education plans to make this policy protecting borrowers in default retroactive to March 13, 2020. It also expects to seize the referral of defaulted federal student loans to the Treasury Department, which can take Social Security benefits and tax refunds.

Lawmakers or President Trump may introduce new relief efforts in the coming weeks. But as of this writing, federal student loan interest is 0% and borrowers of these loans qualify to get forbearance lasting up until around Mid May 2020.  Keep in mind, these rules don’t apply to private loans. Currently, there is no student loan forgiveness program that would eliminate student loans of any kind due to the coronavirus.

You can contact your student loan servicer online or by phone to request forbearance.

Here is a list of the main federal student loan servicers:

• CornerStone
• ECSI
• FedLoan Servicing (PHEAA)
• Granite State (GSMR)
• Great Lakes Educational Loan Services, Inc.
• HESC/Edfinancial
• MOHELA
• Navient
• Nelnet
• OSLA Servicing

But if you’re financially fit to make student loan payments in these difficult economic times, you should. For now, all the money you devote to federal student loans takes down the principal balance. So when interest rates kick back in, they’ll be applied to a smaller balance. That means you’ll end up paying less interest in the long run.

And there are several ways you can lower your payments without resorting to forbearance.

Income-driven repayment (IDR) plans allow some federal student loan borrowers to cap their monthly payments at about 10% to 20% of their monthly income. And the remaining balance may be forgiven after 20 to 25 years of timely payments.

Federal student loan borrowers may qualify one of four options. Eligibility generally depends on your income and the types of loans you have. Monthly payments are typically based on your family size, adjusted gross income (AGI) and eligible loan balance.

You can also direct your loan servicer to place you on the one that you qualify for and results in the lowest monthly payment. But you can always explore your options to see which one fits you best. We briefly describe them below:

• Eligible Loans: Direct Stafford Loans
• Payments: Typically 10% of your discretionary income, divided by 12
• Best For: Single borrowers with high earning potential

• Eligibility: Must be a new borrower as of Oct. 1, 2007 and received disbursement of a Direct Loan on or after Oct. 1, 2011.
• Eligible Loans: Direct Stafford Loans
• Payments: Generally 10% of your discretionary income, divided by 12
• Best For: Married borrowers with two sources of income but low earning potential

• Eligible loans: Direct Stafford Loans, FFEL Program Loans
• Monthly Payments: 15% (10% for new borrowers) of discretionary income divided by 12
• Best for: Those who don’t qualify for other income-driven repayment plans

• Eligible Loans: Direct Stafford Loans, Direct Consolidation Loans
• Payments: The lesser of your monthly payment on a fixed monthly payment plan throughout 12 years based on your income, or 20% of your discretionary income divided by 12

Note that you can’t place any Parent PLUS Loan in an income-driven repayment plan. However, you may consolidate Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then place that consolidated loan on an ICR plan — but not any other income-driven repayment plan.

You can apply for an income-driven repayment plan and learn more about your options by visiting StudentAid.gov or by contacting your student loan servicer. Have your latest federal tax return or other proof of income ready before applying.

If you’re eligible for the Public Service Loan Forgiveness Program, you can wipe out your loans after making timely payments for 10 years while working in a qualifying government or public service field. Qualifying employers include those in teaching, nursing and firefighting.

But qualifying isn’t so easy. In fact, Department of Education data shows that as of June 2019, only about 9% of submitted applications had been processed. Moreover, less than 0.05% of eligible borrowers had their loans discharged. The main reasons people were denied entry into the program have been incomplete applications and failure to meet eligibility requirements.

Make sure you follow these steps before you apply to PSLF

Make Sure You Have PSLF-Eligible Loans: Only loans in the Direct Federal Loan Program will qualify for the PSLF program. You can consolidate or combine other federal loans into a Direct Consolidated Loan to make that loan eligible for PSLF. But if you need to do this, make it the first step. If you’re making payments toward some loans already in the program, these won’t count toward loan forgiveness qualification after you consolidate them. You essentially start all over toward making the 120 monthly required payments over 10 years.

Make Sure Your Employment Qualifies: You must work at least 30 hours a week for an eligible federal, state or local public service employer or 501(c)(3) non-profit organization. Your employer determines eligibility, not the role. So if you hold a public service role but a private company sends you your paycheck, you may not qualify.

Set up an Income-driven Repayment Plan: Traditional repayment options set you up to pay your federal student loans in ten years. But that defeats the purpose of the PSLF program, since you’d have no remaining balance to be forgiven at the end of 10 years. So switch to an income-driven repayment plan that can lower your monthly payments, thereby extending the life of the loan.

Fill Out an Employment Certification Form: This part is critical. So to be safe, fill out every part of the form and get your employer’s signature. Because you’ll need to fill out this form annually, make sure the information reflects the previous year’s application. And if you’ve corrected errors on the form, place your initials next to those corrections. Don’t forget to fill in your employer’s mailing address. Send it to FedLoan Servicing. This organization, which oversees the PSLF program, would become your loan servicer if your application gets processed.

Forward Your Employment Certification Form: Send the form to FedLoan.

If you’re in the PSLF program, keep making payments and avoid forbearance. Remember, you must make 120 timely payments to qualify for loan forgiveness through the program.

The Bureau of Healthcare Workforce under the The Health Resources & Services Administration can pay up to 85% in nursing education debt for registered nurses and advanced practice registered nurses if they spend two years working at Critical Shortage Facilities. The program can also help eligible nurse faculty that work in hospitals, clinics, and other facilities with nurse shortages.

The program covers 60% of outstanding nursing school debt throughout two years. Applicants may apply for a third year to get an additional 25% covered. These funds are not exempt from federal income tax.

You can learn more about this program and the application process by visiting bhw.hrsa.gov.

If you’ve been a teacher working in a low-income elementary or secondary school for five consecutive years, you can have up to $17,500 in federal loans forgiven. Check the Teacher Cancellation Low Income (TCLI) Directory for your school’s eligibility. You must also meet other requirements, including the following:

• Work full-time as a teacher
• Took out loans after October 1, 1998
• Have direct loans
• Have a bachelor’s degree
• Received full state certification as a teacher
• Have licenses and certifications in good standing

Learn more about the Teacher Loan Forgiveness Program at StudentAid.gov.

Military personnel have access to various programs that can help them eliminate the burden of student loans. Among them is the Army Student Loan Repayment program. The Army may pay up to $65,000 worth of eligible loans.

Active duty applicants must meet certain requirements such as the following:

• Decline enrollment in the Montgomery GI Bill in writing, using DD Form 2366
• No prior military service
• High school diploma and a score of 50 or higher on the Armed Services Vocational Aptitude Battery (ASVAB)
• Enlist in one of the critical Military Occupational Specialties (MOS) required under the Loan Repayment Program
• Loans must be made, insured, or guaranteed prior to entry on active duty
• Have eligible loans

You can learn more about this and other programs at GoArmy.com. Military personnel also may want to check out the following programs:

• The National Defense Student Loan Discharge Program (NDSLD)
• The Servicemembers Civil Relief Act (SCRA)
• The Veteran’s Total and Permanent Disability

Military members should look up other field-specific student loan relief programs, as qualifications can vary widely across programs and they are subject to change.

More than 45 states and the District of Columbia sponsor student loan relief programs for their residents. For instance, New York supports the District Attorney and Indigent Legal Services Attorney Loan Forgiveness Program to retain certain practitioners in the legal field.

So look up some programs in your state. But do your research, as some programs are no longer offered.

If you have loans from several sources, your servicer or a lender may offer to pay them off in exchange for handing you a new loan with a single payment and interest rate. Consolidation may lower your monthly payments. But it can also mean you pay more interest in the long term.  This move typically suits you best when you consolidate federal loans. But you can bundle different types of loans in the same fashion through refinancing. The goal here is earning a lower combined interest rate on the new loan. Use our student loan refinance rates calculator for some pointers.

Applying for an income-driven repayment plan, forbearance or the PSLF program doesn’t require any fees. So if a debt-relief company offers to do it for you for a fee, be careful. Some of these companies charge unreasonable fees for something you can do on your own. In fact, some states are moving to outlaw these kinds of practices.

• Keep looking. Federal student loan relief efforts in response to global distress like the coronavirus is temporary. But you’ll likely always have access to some kind of student loan debt relief program. Your state may sponsor several. Or your job title alone can make you eligible for certain programs.
• Get hand-on help. Settle your student loan debt and all your financial objectives with the help of a financial advisor. Our advisor matching tool connects you with up to three local advisors in minutes.

Photo credit: ©iStock.com/Diy13, ©iStock.com/SDI Productions, ©iStock.com/Moussa81

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