Options for clients with student loans during the pandemic

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Due to the economic downturn and widespread layoffs caused by the coronavirus pandemic, some of your clients or their family members may be struggling to pay off their student loans right now. The federal government has offered some relief to borrowers: The Coronavirus Aid, Relief, and Economic Security (CARES) Act, PL 116-136, suspended borrower payments with loans held by the Department of Education (ED) from March 13 to September 30). But borrowers with other types of loans also have options.

Federal government relief

Under the CARES Act, clients with Direct Loans or Federal Family Education Loans (FFELs) held by the ED do not have to make payments until September 30. Interest on these loans was also waived until September 30.

The suspension of student loan payments is automatic. Borrowers don’t have to do anything to stop their payments, even if they’ve set up a direct debit, said Ross Riskin, CPA / PFS, assistant professor of taxation at the American College of Financial Services and author of Advisor’s Guide to Educational Planning.

It’s important for customers to know this, Riskin said, as scammers have contacted some borrowers claiming they need their information to be eligible for student loan relief.

Borrowers who made a payment after March 13 can have it repaid if they wish, he said.

For borrowers seeking utility loan forgiveness, this six-month period will count toward loan forgiveness even if they are not making any payments, as long as they are still employed full-time by eligible employers.

For at least 60 days after March 13, the ED will not garnish the salaries of borrowers with federally-held student loans who are in default, nor will they offset money from their Social Security checks or repayments. federal taxes. Anyone who took money out of a tax refund check between March 13 and March 27 will be refunded, said Melissa Towell Maguire, student loan advisor for the nonprofit credit counseling agency Consumer. Debt Counselors.

Eligibility for relief under the CARES Act

Only borrowers with loans held by DE are eligible for relief under the CARES Act. Borrowers with private loans, Perkins loans, or FFEL loans not held by the ED are not. FFEL loans were issued before 2010, and the majority are still held by commercial lenders and have been guaranteed by the federal government, Riskin said, so borrowers need to do their due diligence to make sure they have loans. eligible loans if they request relief.

To find out if their loans are covered by the CARES Act, borrowers can contact their loan officers or visit studentaid.gov. Defaulting borrowers can go to studentaid.gov and download their file from the National Student Loans Data System to see if their loans are guaranteed by ED’s Default Resolution Group, a guarantee agency. state or other guarantee agency, Maguire said.

Options for borrowers who do not qualify for relief

If your clients or their family members have student loans that are not covered by the CARES Act but are struggling to make payments, there are options.

Borrowers can get a deferral at any time in a national emergency, even if they have private loans, Maguire said. These deferrals are not available automatically, so borrowers will need to contact their loan manager.

Some borrowers whose loans are not covered by the CARES Act may be tempted to consolidate their loans into federal loans in order to qualify for the six-month suspension of payments. Think carefully before taking such a step, Maguire and Riskin warn.

“It can take six to 12 weeks to be approved for consolidation,” Maguire said. By the time a borrower is approved, he or she could fall under the CARES Act for only a month or two, she says.

Borrowers who have FFEL loans and who are working on loan cancellation under an income-based repayment plan, such as income-based repayment, should be especially careful about consolidation, because consolidating into a direct loan will “reset” the loan cancellation clock, Riskin says. For example, if a borrower made 100 of the 300 payments needed to qualify for a loan forgiveness and then consolidates into a direct loan, none of the 100 previously made payments would count towards the forgiveness if the borrower chooses to take out a loan forgiveness. income-based reimbursement. plan the new loan.

Options for clients who have lost their jobs or have had their hours reduced

Anyone who files for unemployment can also get an unemployment deferral on their student loans, Maguire said, which will allow them to defer payments for six months. Borrowers can apply for additional stays after this six-month period has ended.

Customers who have been fired or whose work hours have been reduced may wish to apply for Income-Based Repayment Plans (IDRP), said Riskin and Maguire. Borrowers who already have an IDRP can recertify their income, notifying their student loan manager that their income is lower, so their payments can be adjusted.

Clients who are able to pay off their student loans should do so

Borrowers are still able to make student loan repayments on loans held by the ED by September 30 if they wish. In fact, it is advantageous for them to do so, Riskin said, because they will be able to take advantage of the zero percent interest rate. All payments made between now and September 30 will go directly to principal once the borrower pays the accrued interest by March 13, meaning borrowers will pay less on their loans overall.

In fact, due to the current low interest rate environment, many borrowers might consider denying the benefits of the CARES Act regarding student loans and refinancing with a private loan, Riskin said.

“In some cases, it may be better to forgo federal benefits if you can get a 2-3% interest rate and favorable repayment terms in the private loan market,” he said. “The savings can be greater in the long run.” Borrowers should speak with a CPA financial planner to determine if this is a good option for them, he said.

For more information and stories on the coronavirus and how CPAs can handle the challenges of the outbreak, visit JofAof coronavirus resource page. To learn more about planning student loans, read The Advisor’s Guide to Educational Planning (Membership of the PFP Section required).

Courtney L. Vien ([email protected]ima.com) is a JofA editor-in-chief.

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