Where are your student loans during the pandemic? Here is a snapshot. (iStock)
It is a 2020 roller coaster ride for student loans.
On the one hand, college students and their families are not sure exactly how much student loan assistance will need to take this summer as colleges adjust their schedules – and in many cases, their lesson plans – to deal with new COVID-related academic schedules coming September.
On the flip side, the CARES Act student loan grant was scheduled to end Sept. 30 and federal student loan lenders were set to recover payments this fall, until President Trump withheld student loan payments by the end of the year through executive order on Aug. 8. (Private student loans were not affected by the CARES law and are not part of the executive order).
What happened to student loans?
With so much risk for college loans for the rest of 2020, where do consumers stand for student loans now?
In all likelihood, they will remain in place, as the executive order will for the most part continue with the payment service set out in the CARES law, but much may change as a relief loan for student loans in the coming weeks can be broken between the Senate and the Second Chamber.
“Currently, there are no major proposals to extend the CARES Act relief,” said Robert Farrington, founder of College Investor, a financial platform for students and their families. “As such, federal lenders would have to resume their payments in October (unless the executive order exists and no congressional deal on student loans is reached). Their lender would have to send up six notices to remind lenders of upcoming payments again. “
Do I need to refinance student loans now to save money?
While Washington Pulse is figuring out its next move, student loan lenders have some time to make beneficial moves to limit their student loan. At the moment, that could mean focusing on refinancing their loans.
If you are interested in financing your student loans, you will need to use Credible’s free online tools to do this. Just fill in your desired loan amount and rough credit score to see what kind of rates you qualify for today.
Why you should repay student loans now, according to an expert
“Interest rates on student loans have dropped to historic lows, but most lenders would probably not need to refinance yet,” says Farrington. “If you have federal loans, you’re probably better off keeping them and using the programs available to help. These include income-driven repayment, loan forgiveness, and hardship waivers. If Congress extends relief for student loans, or if the executive mandate remains, it will likely also be for federal loans only. “However, if you have private loans, or if you pay off your federal loans in the coming years and do not take advantage of programs, refinancing can make sense to save money,” he adds.
Just provide a lending option platform like Credible, which allows lenders to compare interest rates from multiple lenders in minutes.
STUDENT LOAN INTEREST RATES ON HISTORICAL LOWS – HOW TO SAVE
Do I have to switch to a private student loan?
If a student has studied on federal loans, private student loans can be a decent stopgap measure – if you understand the difference in interest rates, including variables, between federal and private student loans.
“Federal student loan interest rates are calculated in a much different way than private student loans,” said Jeff Mattonelli, a financial advisor at Van Leeuwen & Company in Princeton, NJ.
“Interest rates on federal student loans are set by Congress, not by your individual circumstances.”
Individual student loans also consider various personal factors, such as the credit of the loan, the term of the loan, and whether the rate is fixed as a variable. Visit Credible to view a table of interest rates to compare fixed and variable interest rates from multiple lenders at once.
“As a result, a lender with moderate credit is more likely to borrow at a higher interest rate than a lender with exceptional credit,” says Mattonelli. “Sometimes it can be helpful for a recent graduate to have a co-signer on the loan who has a more established credit history, in order to get a lower interest rate. However, this can be a risk for the co-signer, as he / she would become responsible if the other borrower fails. “
What are my other options?
Another move student loans can take is to switch to an income-driven repayment plan.
“If a student loan income is less than 150% of the poverty line, the monthly payment for loans will be zero under an income-driven repayment schedule,” says Mark Kantrowitz, publisher and vice president of research at SavingforCollege.com. “If the creditor is already in an income-driven repayment plan, but their income has changed, they can ask the lender to certify their income early.”
Otherwise, federal student loans would have to wait until after the pay break and intervention exemption expired to refinance their student loans.
“There should be no worries about interest rates on private student loans that will increase significantly in the coming months, or even through 2021,” Kantrowicz says. “The interest rates on new federal student loans are at a record low of 2.75%, but one cannot consolidate old federal student loans into new ones to take advantage of the new interest rates.”
At that point, the only option would be to refinance a private student loan, but then student lenders would lose the superior benefits of federal loans, Kantrowicz notes. “Once you have reached the limits for federal loans, it could be a sign that you are borrowing too much money and should consider switching to a less expensive college or otherwise save on college fees,” he says.
