7 Essential Facts About Student Loans and the Coronavirus
The economic impact of COVID-19 is rapidly evolving. To help you find reliable information, the U.S. Department of Education is monitoring the COVID-19 outbreak and providing information on their website for both borrowers and current university students. You can also find updates on the Federal Student Aid website.
In May 2019, the Federal Reserve Board reported that typical student loan borrowers pay between $200 to $300 on their student loans each month, and 2 out of 10 of adults are behind on their student loan payments. Student loan debt was already burdensome for many Americans before the arrival of the coronavirus. Still, now that people are expected to stay home from work, student loan payments will become even more difficult for many Americans.
Very few people were financially prepared for a global pandemic. The coronavirus has created overwhelming challenges, including financial ones, that require unconventional solutions. Officials recognize this, and they are bringing the topic of student loans into the conversation.
How the Coronavirus Is Stressing the US Economy
Retail stores, restaurants and other non-essential businesses throughout the country have been ordered to shut down to decrease the probability of coronavirus spread. Only hospitals, pharmacies, grocery stores and other businesses deemed “essential” remain in operation.
Though these decisions were made to protect public health, there will be economic fallout. Some industries have begun layoffs or a reduction in hours. People who work in the restaurant, tourism and hospitality sectors are already feeling the pain. They can’t work from home. Expert economist Milton Ezrati predicts that a recession may occur as a result of necessary lockdowns and quarantines as businesses become unable to meet their obligations and are forced to let their workers go permanently.
In the coming days, we will have a better understanding of the long-term impacts on student loans, including the ability for people in these sectors to repay, and how state and federal governments are acting to help. Officials are already recognizing the importance of addressing the matter, and have started creating ways to help.
What to Know About the Student Loan Interest Suspension
There is a glimmer of good news for borrowers with student loan debt. Student loan relief has come incrementally, starting with a temporary interest waiver and payment suspension on federal student loans. The Coronavirus Aid, Relief, and Economic Security (Cares) Act extends these measures, giving borrows a break from student loan payments if necessary. These actions may help borrowers worried about making payments while in quarantine or ill with the coronavirus. It’s important to understand the key facts about what these measures mean for your student loan situation.
- The CARES Act allows borrowers to cease payments until September 30, 2020.
- During this time, federal student loans will not accrue additional interest.
- All payments you make will go toward your loan’s principal, and loans won’t accrue additional interest.
- Collections will stop for those with student loans in default, including wage garnishments and tax offsets.
- The six-month period between March and September 30, 2020 will count toward student loan forgiveness programs, including public service loan forgiveness.
- Employers can provide up to $5,250 per year as a tax-free loan repayment or education plan.
- Not everyone will benefit, as these measures only apply to federal loans. Borrowers in the following groups may need to seek other options:
- Borrowers with private loans
- Borrowers with institutional (university-owned) loans
- Graduates in default, including those whose loans may be in collections
More Financial Help During the Coronavirus Crisis
In addition to federal measures, some states have already taken concrete actions to help financially stressed residents:
- New York state will not collect student loan debt until April 15, per New York Attorney General Letitia James and Governor Cuomo.
- The Employment Department of the state of Oregon has created additional guidelines for employers and employees who need assistance during the COVID19 pandemic. Workers who are laid off temporarily are encouraged to apply for unemployment insurance benefits for the time being if they are eligible.
- The Coronavirus Emergency Aid Package was signed into law. It will increase testing resources and nutritional assistance, expand unemployment insurance benefits nationwide and give paid sick leave to some workers who are sick with the coronavirus or taking care of an infected family member.
- Evictions and foreclosures have been suspended until April due to the pandemic.
- The Treasury Department has proposed allocating $500 billion to send paychecks directly to taxpayers so they can continue to cover expenses.
What Other Steps Can I Take to Protect My Finances?
If none of these forms of relief directly impact you, other government measures or workarounds may help you free up your cash flow during the coronavirus crisis. You can still apply for student loan deferments and forbearance if you are struggling to pay back your student loans due to the coronavirus.
COVID-19 is a pandemic, and we are all feeling the stress of what that means. Still, you can brace yourself for the health and economic impacts by preparing yourself as you would during a natural disaster.
Student loans may not seem like an issue to worry about at a time like this, and for some people, they aren’t. Still, if you’re feeling stressed about your bills and how you’ll pay them during this challenging time, you should know that there are solutions to help. The news is changing by the minute in this global health crisis, so more good news about student loans could be on the way.
About the Author
- Federal Reserve. "Report on the Economic Well-Being of U.S. Households in 2018." Accessed March 18, 2020.
- Forbes. "Secretary DeVos Announces New Student Loan Relief Due To Coronavirus." Accessed March 20, 2020.
- U.S. Department of Education. "Delivering on President Trump's Promise, Secretary DeVos Suspends Federal Student Loan Payments, Waives Interest During National Emergency." Accessed March 20, 2020.
- Warren, Elizabeth. "Schumer, Murray, Brown, And Warren Unveil Bold, New Plan To Cancel Student Loan Payments For Duration Of Coronavirus Emergency And Provide Minimum $10K Payoff For All Federal Student Loan Borrowers." Accessed March 20, 2020.
- The Hill. "Warren, Pressley urge student debt cancellation to be part of next coronavirus emergency funding package." Accessed March 20, 2020.
- U.S. Department of Education. "COVID-19 ("Coronavirus") Information and Resources for Schools and School Personnel." Accessed March 20, 2020.
- Friedman, Zach. "Trump Stops Collection Of Student Loan Debt From Those In Default." Accessed March 29, 2020.
- congress.gov. "Coronavirus Aid, Relief, and Economic Security Act." Accessed March 29, 2020.