How to Get Student Loan Relief in the US During COVID-19

Covid-19 has caused a great deal of distress around the world. On top of more distressing aspects of the virus, many people have been made redundant, leaving them in great financial difficulty. For those who haven’t lost their jobs, they may be spending more money than usual supporting family members or dealing with other unexpected costs.

For this reason, the US government announced the Coronavirus Aid, Relief, and Economic Security Act (known as the CARES Act) in March 2020, which allowed for a six-month suspension on student loan repayments in the US and a zero percent interest rate charged on the student loan during this time. 

This six-month window has since been extended for a further three months, meaning that graduates can get student loan relief until December 31, 2020. 

Who can receive federal student loan relief?

It’s worth noting that this student loan relief only applies to federally held loans. This means that those holding private loans and certain other types of loan will not be able to benefit from this temporary forbearance and will have to continue making student loan repayments as normal.

Student loans that are covered by the CARES Act include:

• Federal Direct Stafford Loan
• Federal Direct Grad PLUS Loan
• Federal Direct Parent PLUS Loan
• Federal Direct Consolidation Loan
• Federally Held Federal Family Education Loans (FFEL)

Student loans that are not covered by the CARES Act include:

• Private student loans
• Private Parent Plus loans
• FFEL loans that are serviced by a commercial lender
• Perkins loans

To check if your loan is eligible, 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 isn’t covered by the scheme, don’t worry. There may still be a way to benefit from this student loan relief. 

If you have a Federal Family Education loan or a Perkins loan, you can combine multiple student loans into one and gain access to this student loan forbearance by opening 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 having them all in one place. It also allows you to gain access to the government’s student debt relief.

The loan is open to those who have certain Federal Family Education loans or Perkins loans, and is free to open. Unfortunately, private loans are not included in this.

The federal direct consolidation loan will combine all of your separate federal education student loans into one. By doing this, you’ll gain access to the student loan repayment suspension, and, in 2021 when you start repaying again, will only have to make a single monthly payment and pay only one student loan servicer. This should make it easier to manage your money. 

To consolidate your loan, go to studentaid.gov.

Federal direct consolidation loan benefits

So, should you get a federal direct consolidation loan? Here are some of the benefits of getting one: 

Payment postponements

You’ll benefit from the government’s CARES Act and won’t have to repay any of your student loan until December 31, 2020, which will give you a much-needed break from loan repayments.

Interest waiver

Under the CARES Act, you won’t pay any interest on your student loan until 2021 if you have a federal direct consolidation loan. 

Alternative repayment plans

Most student loans will be paid off within a 10-year period, but the federal direct consolidation loan will extend this repayment period to between 10 to 30 years. 

This will mean that your student loan repayments will be lower monthly, but you may end up paying more overall, due to the increased interest.

The loan also opens you up to several repayment plans, including:

• Standard repayment plan: You pay a fixed amount each month to ensure that your entire loan is paid off between 10 to 30 years.
• Extended repayment plans: Payments are either fixed or start low and rise over the life of the loan (usually 25 years). Borrowers must have more than US$30,000 in outstanding direct loans to be eligible for this plan.
• Revised pay as you earn repayment plan (REPAYE): Monthly payments are 10 percent of your income after tax and any outstanding balance will be forgiven after 20 or 25 years, depending on your circumstances.
• Income based repayment plan (IBR): Monthly payments are 10 to 15 percent of your income after tax, depending on when you received your loan. Outstanding amounts after 20 or 25 years (depending on when you started the loan) will be forgiven, but you may have to pay income tax on this forgiven amount.
• Income-Contingent Repayment Plan (ICR): Monthly repayments are 20 percent of income after tax or fixed payment over 12 years adjusted to your income. After 25 years, the outstanding balance will be written off.

Loan forgiveness

Under the REPAYE, IBR and ICR plans, explained above, your student loan will get written off after a certain amount of years – usually 20-25 years, depending on a variety of factors.

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

You should contact your loan provider for more information about this.

How else to benefit from loan relief

If you either aren’t eligible for a federal direct consolidation loan or decide not to get one and are not eligible for the government CARES student loan relief, there may be several other options available to you.

Make sure to check with your student loan provider, even if you think you’re eligible, as each loan will have different terms.

Relief for interest-based repayment plans

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

If you lose your job or your income has dropped and you think you might be eligible for this, contact your student loan servicer to let them know and to find out the next steps. 

Relief for federal family education loans

Alternatively, if you have a FFEL loan, you may be eligible for the economic hardship deferment, unemployment deferment, forbearances and income-driven repayment.

Contact your loan provider to find out more about this. 

Relief for private loans

Many private loan providers are offering forbearance or partial forbearance options during the pandemic, which will pause student low repayments for a certain amount of time. It’s worth checking with your loan provider to see what’s on offer.

However, be aware that under most of these plans, interest will continue to be charged on the outstanding amount and this will be added to the overall loan balance.