Borrow Student Loans

8 Steps To Take If you’re Struggling To Pay Your Student Loans

Kim Porter  |  May 8, 2020

There's help out there, even if you're not eligible for CARES Act aid. Before you skip a payment, take these steps for student loan relief.

There are many financial relief benefits in the Coronavirus Aid, Relief and Economic Security (CARES) Act for struggling student loan borrowers — depending on what type of loan you have. The sweeping economic stimulus bill provides much-needed student loan relief for borrowers with federal student loans. But the new law pretty much ignores those struggling to pay privately held loans. But that doesn’t mean you’re completely out of luck. It just means you’ll need to use different savings strategies if you’re suffering financial hardship due to the COVID-19 crisis. 

Here are eight steps to take if you’re in a financial bind:

1. Find out if you qualify for CARES Act protections

First, you’ll need to figure out whether you have federal or private student loans — or a mixture of both. That’s because federal loans are like a golden ticket to accessing the perks of the CARES Act.  

“You don’t get the same protections across the board, so it’s very important to know the difference,” says Bruce McClary, spokesman for the National Foundation for Credit Counseling. “Your servicer can help you identify which loans are federal and which are private.”

You can also log in to the National Student Loan Data System (NSLDS) to find a list of your federal loans. Or, check the information in your online account. Borrowers with the following types of federal student loans automatically qualify for CARES Act protections:

  • Direct loans
  • Loans from the Federal Family Education Loan (FFEL) Program owned by the U.S. Department of Education
  • Perkins loans owned by the Department of Education

Those who qualify won’t have to make payments for six months, and interest will automatically drop to 0%. In the meantime, these accounts will be reported in good standing to the credit bureaus. “For those who are struggling with unemployment or a reduction in hours and have federal student loans,” McClary says, “that is a significant benefit.”

2. Consolidate your FFEL or Perkins loans

Some older FFEL and Perkins loans are commercially owned, so they won’t qualify for the temporary 0% APR and payment freeze. But there is a workaround: By consolidating them into a federal Direct Consolidation loan, ownership shifts to the Department of Education. That means your new loan will qualify for CARES Act protections. (Keep this in mind: The Direct Consolidation loan is only available for federal student loans. You won’t be able to consolidate private student loans into a federal loan.)

Before you take this step, ask your servicer how your loan terms could change. Consolidation can greatly change the terms going forward. For example, the balance and interest rate could increase, costing you more money. Plus the clock resets on loan forgiveness. 

3. Check student loan relief efforts in your state

States have been hard at work negotiating with loan servicers to expand hardship options for more borrowers. The result? Under a new agreement, people with private loans and commercially held FFEL and Perkins loans can now request relief, including:

  • A minimum 90-day forbearance.
  • Waived late-payment fees.
  • A break on debt collection lawsuits for 90 days.
  • Proper credit reporting.
  • Help with enrolling borrowers in other assistance programs

Check the fine print, though. The program is limited to residents in participating states and specific loan servicers. Currently residents are covered in California, Colorado, Connecticut, District of Columbia, Illinois, Massachusetts, New Jersey, New York, Vermont, Virginia, Washington state. Roughly 20 student loan servicers are providing relief, including as of press time: 

  • Aspire Resources
  • College Ave Student Loan Servicing, LLC
  • Earnest Operations, LLC
  • Edfinancial Services, LLC
  • Kentucky Higher Education Student Loan Corp.
  • Lendkey Technologies Inc.
  • Higher Education Loan Authority of the State of Missouri (MOHELA)
  • Navient Corp.
  • Nelnet Inc.
  • SoFi Lending Corp.
  • Tuition Options, LLC
  • United Guaranty Services
  • Upstart Network Inc.
  • Utah Higher Education Assistance Authority
  • Vermont Student Assistance Corporation (VSAC)

In California, these loan servicers are also participating: 

  • Discover Financial Servicers
  • Figure Lending LLC
  • Launch Servicing LLC
  • Reunion Student Loan Finance Corp.
  • Rhode Island Student Loan Authority

Note that the benefits are not automatic — so borrowers will need to reach out to their loan servicers to request them.

4. Contact your private student loan servicer 

Not covered by the new agreement? That’s OK — you still have options. Find your loan servicer’s contact information on your latest bill, or head to its website. Most have a page dedicated to COVID-19 that explains borrower options and how to contact the company. 

Don’t miss this step, McClary says. “These programs don’t automatically start if you miss a payment without telling anyone why you’re missing a payment. You could end up in a worse situation.” For example, the loan servicer might charge you a late-payment fee and report the defaulted loan to the credit bureaus, which can lead to damaged credit.

When you contact your loan servicer, explain your situation and how you’ve been impacted by the coronavirus. “The majority of private lenders have been willing to work with borrowers on things like 60- to 90-day payment deferments,” says Jeremy Lark, senior manager of client services at GreenPath Financial Wellness. Some loan servicers may also provide student loan relief by waiving certain fees or working out a new payment plan to keep your account in good standing.

Make sure you understand how forbearance works. Typically, you can skip payments for a few months. But interest will continue accruing and may even be “capitalized,” or rolled into the unpaid principal. That increases the cost of your loan.   

5. Check your credit reports 

If you’ve entered a forbearance program, make sure your credit reports reflect that. Lenders must report accounts as “current” if the borrower is enrolled in a hardship program due to COVID-19. There’s a time frame attached to this protection, too. The lender must report your account as on-time throughout the COVID-19 state of emergency and for 120 days after it ends. You can check your credit reports for free every week through April 2021 to make sure your lenders are following through.

6. Use your stimulus check to tide you over 

Thanks to the CARES Act, millions of Americans have received emergency cash: $1,200 for individuals, $2,400 for married couples and $500 per eligible child. If your loan servicer doesn’t offer an acceptable hardship program, consider using the stimulus check to pay your student loan bills. (If you still haven’t received your stimulus check, here’s how to follow up.) 

7. Reallocate some of the money in your budget 

Plenty of lenders, insurers and utility companies are offering their own forms of assistance during the coronavirus crisis, Lark points out. “Money that normally would have been used to cover these costs can be redirected to cover loan payments,” he says. It can help keep your account in good standing, at least until you reach an agreement with your private student loan servicer for student loan relief.

8. Visit a nonprofit credit counseling agency 

A credit counselor can meet with you and help you understand your options for student loan relief, organize your documents and talk with your loan servicers, McClary says. Most nonprofit agencies offer an initial free consultation and then may charge a fee. 

“If you don’t know where to begin, it’s a good place to start,” McClary says. “The urgency of the situation can create panic. It’s just important to sit down with a financial professional to ensure you’re getting clear answers to the questions regarding your unique circumstances.” 

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