Private student loans aren’t on hold, but here’s what you can do


Everything private student loan borrowers need to know in the midst of the federal CARES student loan hiatus. (iStock)

If there is a bright side to the coronavirus pandemic, it could be the temporary relief for student loan borrowers – especially those on federal student loans. The CARES law of March suspended interest and payments on federal student loans until September. In August, President Trump extended this loan repayment pause until the end of the year.

However, private student loans are not put on hold, so what can borrowers who pay for their education with these types of loans do?

Below are some questions about the student loan options that private borrowers may have.

Does the CARES law apply to private student loans?

Unfortunately, federal loan relief under the CARES Act does not extend to borrowers who hold private student loans. These changes, while welcome, can be especially confusing if you owe balances on a mix of federal and private loans.

WHAT CARES ACT MEANS FOR YOUR STUDENT LOANS

Can you get forbearance on private student loans?

A coalition of states Offers relief to private loan borrowers, including up to 90-day forbearance, waiver of late payment fees, and suspension of collections. They understand:

  • California
  • Colorado
  • Connecticut
  • Illinois
  • Massachusetts
  • New Jersey
  • new York
  • Vermont
  • Virginia
  • Washington
  • Washington DC

Other states also suspend debt collections and payday garnishments, but this varies by state and lender. To find out what options are available to you, contact your loan manager.

4 THINGS TO DO BEFORE THE END OF THE STUDENT LOAN ABSENCE

What if I don’t live in a state where relief is available?

There are two main avenues of action for private student loan borrowers who have difficulty repaying: refinancing and loan forbearance.

  • Refinancing: Your same debt goes into a new loan at a lower interest rate.
  • Abstention: Suspend payments until a later date while interest accrues on the balance.

Refinancing

Refinancing may not seem like saving you money in the short term, but with interest rates at record highs, now is the time to get a lower rate and monthly payment.

Use Credible to buy refinance rates from several private lenders. You can browse loan products, loan repayment plans, and more in their multi-lender marketplace.

This student loan refinance calculator can also help borrowers visualize potential new monthly payments and a new repayment schedule.

Even if your monthly payment will change, a new refinance loan should cost you nothing. Credible’s partner lenders don’t charge loan application fees, prepayment penalties, or origination fees, so you can easily find an affordable option (without affecting your credit score).

STUDENT REFINANCING RATES ARE FALLING – HERE’S WHY

Those with variable rate loans may find it difficult to refinance because their interest rate always reflects the rate on Federal Reserve funds. Since this rate was lowered to 0% in March 2020, private variable rate loans may already be at the lowest rate.

Should I continue to pay my student loans?

The short answer is yes. If you have private loans and can pay them off during this time, you should. Because in the absence of some type of forbearance, these loans always earn interest, meaning that skipping payments only adds to the overall balance and the repayment will take longer. Missing payments on any type of debt account can also have a serious impact on your credit.

But if you can’t afford to repay right now, you should definitely review your options for forbearance with your service agent. However, those who can afford the payments should use this time to take on more debt as interest rates are at record highs and federal loan repayments paused.

SHOULD YOU CONSOLIDATE OR REFINANCE YOUR STUDENT LOANS?

Will failure to pay affect student loan borrowers in the future?

If you have private student loans and stop paying without contacting your lender, it could have big ramifications for your credit score. A low credit score will definitely impact your ability to qualify for a mortgage, credit card, student loan, and other types of loan products in the future.

What is the best action for private loan borrowers?

While talking directly to your lender might seem intimidating right now (especially if you can’t pay or have already missed payments), it’s actually the best thing you can do for your financial situation.

It is also the very first thing you should do if you feel that you will have difficulty making payments at some point in the future.

  • First, check your loan officer’s website for any updates on assistance programs related to COVID-19.
  • If they haven’t implemented any relief programs, call them and ask if they offer forbearance or any type of rate reduction program. A rate reduction could temporarily reduce your monthly payment, your interest rate, or both.
  • If you have both private and federal loans (and you can afford it), use the money earmarked for federal payments since those payments are suspended and at 0% interest to advance your private loans.

The good news is that even in a “normal” economy, many providers offer freedom from hardship and / or unemployment. Fortunately, getting temporary help from your agents is often as easy as making a call and providing some type of additional information such as unemployment checks or bank statements.

FIXED OR VARIABLE RATE LOAN OPTIONS: WHICH IS BEST FOR YOU?