Stimulus negotiations have initially fallen apart and a deal seems to be on the best weeks away. Here is … [+]
Stimulus negotiations have initially fallen apart and a deal seems to be on the best weeks away. That has left many with questions, especially student loans.
The CARES law was enacted in March and payments and interest on federal student loans were suspended through September 30, 2020. Without a deal to extend this provision, student lenders were set to recover payments quickly. Fortunately, they caught on for a while when President Trump signed an order then payments stopped by the end of the year.
But there are a few things that lenders need to know.
Lenders do not wrestle.
Lenders who do not struggle financially benefit from the extension of Trump. If they benefit from the suspension, they have to spend extra money. And that might help the economy. Spending the money that they would otherwise pay on student loans can provide a marginal stimulus to the economy through increased or sustained consumer spending.
Some might consider saving that money, but that may not be the best financial decision. Like the CARES Act, Trump’s mandate stopped interest rates on those federal student loans. Lenders who make payments during this time will only make payments and will pay off the balance of their loan faster, which will save them money in the long run.
Lenders in income-driven repayment.
Lenders in income-driven repayment also benefit from Trump’s order. If they do not have difficulty, they can make principal payments that pay off their loans faster. And if they benefit from the $ 0 payments, it also applies to the loan forgiveness offered under the program.
Lenders in these repayment plans should also make sure that their income information is up to date. For those who may have experienced income reduction, they want their payments to be reduced even if payments start on January 1, 2021 again.
And because it’s been several months since payments were suspended, they may be required to recertify their income to stay with these plans. If lenders forget to do so, their payments may default to the standard repayment schedule, which would likely mean higher payments if payments resume.
Lenders seeking forgiveness of public services.
Lenders seeking forgiveness under the Public Service Loan Forgiveness Program (PSLF) should note that Trump’s order was a little different than the suspension of the CARES Act. The CARES Act included language that said, as long as student lenders could otherwise be eligible for the PSLF program during the suspension, the months of non-payment to the required number of payments could be forgiven.
But the president’s order did not contain any language about the PSLF program. In addition to Congress enacting legislation that extends the provisions of the CARES Student Loans Act, student lenders who do not make payments during Trump’s three-month suspension will not receive credit for the required 120 loan forgiveness payments under the PSLF program. . The Department of Education can determine a way for the months of non-payment to count, but it will be difficult to do so without legislation.
Of course, PSLF lenders can also benefit from the relief and save money during this time, especially if they have experienced a reduction in income due to the economic downturn. But for those PSLF lenders who have no trouble, they should consider making payments.
Although they could save money now, it can pay off in the long run to pay them off. Because PSLF lenders are in income-driven repayment plan, their payments increase as their income increases. And, on average, college graduates see their income increase over time, so the three payments today may be less than three payments years later, especially for lenders early in their careers.
All student counselors.
All lenders need to keep an eye on what Congress is doing. There have been several proposals seeking to extend the suspension of the CARES law, some by the end of the year and others for another year. Other proposals call for forgiveness of student loans, but that seems likely.
Similar readings:
House Democrats scale student debt in the Heroes Act
First Chamber wants GOP to encourage controls but not relief from student loans
What Coronavirus Stimulation Means for Your Student Loans
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