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Looking Back on How COVID-19 Has Impacted Student Loans

June 26, 2020

The COVID-19 pandemic has affected everyone’s life in one way or another. For many Americans, this included their student loans. Whether you are unable to make payments or benefiting from a lower interest rate, it can be confusing to know how all of the ways the pandemic may be affecting your situation. 

 

By Caroline Farhat

 

The impact on student loans is different depending on whether you have federal or private student loans. If you do not know what type of loans you have, you can log in to your account on the StudentAid.gov site that will show you any federal loans you have borrowed. If you think you have any private loans, be sure to request your free credit report to see the information on them.

 

COVID-19 Impact on Federal Student Loans

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act impacts most federal student loans, but not all. Perkins Loans and FFELP loans that are not owned by the U.S. Department of Education are not included in the benefits provided by the Act. Most federal student loans are covered. Here’s how the CARES Act affects all other federal student loans: 

 

Administrative Forbearance

The covered student loans were automatically placed on administrative forbearance from March 13, 2020, through September 30, 2020. This means no payments are required during that period and no action was required to receive this benefit. If you decide to make payments during this time the amount will go towards the principal of the loan after the interest accrued as of March 13 is paid. Any payments made after March 13 through September 30 can be requested for a refund.  

 

Interest Rate

The interest rate on the covered federal loans is temporarily set at 0% from March 13 through September 30. You do not have to do anything to receive the reduced interest rate. This reduced interest rate is beneficial because your loans will not be increasing during the paused period.  

 

Student Loan Forgiveness

The non-payments during the March 13 to September 30 timeframe count towards payments made for student loan forgiveness. This is especially beneficial if you are in the Public Service Loan Forgiveness (PSLF) program. As long as you are employed at a qualifying employer, you do not have to make any payments during the period and the months will still qualify towards your required number of payments. 

  • For example: if you have 48 payments remaining until you are eligible for loan forgiveness under the PSLF and you do not make any payments from March 13 to September 30, your required number of payments until forgiveness will be reduced to 42 payments.

 

Collection on Defaulted Loans

If you currently have federal defaulted student loans, the collection on those loans is paused from March 13 through September 30, 2020. You should not receive letters or phone calls regarding the collection of these debts. In addition, your tax refund, social security benefits and wages cannot be garnished during this time. However, keep in mind after this paused period, collections will resume on your defaulted loan.

 

Rehabilitating Defaulted Loan

If you are in a rehabilitation agreement for your defaulted loan, the suspended payments will count toward your rehabilitation during the suspended payments period.

 

Employer Educational Assistance Programs

The CARES Act allows employers to contribute up to $5,250 per year towards an employee’s student loans tax-free through December 31, 2020. This is a savings for the employee who can have extra money paid on their student loans with no taxes owed on the money. This provision of the Act allows employers to use student loan assistance as a benefit to offer to employees, while not having to pay payroll taxes on the money. Corporations looking to add this benefit for their employees can find out more information here.

 

COVID-19 Impact on Private Student Loans

Private student loans are not covered by the CARES Act, however, you may still be eligible for some relief if you have been financially impacted by COVID-19.

 

Lender Relief Measures

Many lenders are providing relief measures, such as forbearance, in which you will not be required to make payments for a certain period. Every lender is different so be sure to check with your provider if you need any assistance.

 

State Relief

Some states’ attorney general offices have made agreements with private student loan lenders to provide relief to borrowers impacted by the pandemic. As of this writing, nine states plus Washington D.C. have made agreements with lenders. Some of the benefits in the agreements may include:

  • 90 days forbearance, which means no payments would be due 
  • Waiver of late fees 
  • No negative reporting to credit bureaus 

If you do not live in a state that is helping to provide relief, refinancing your student loans may be a great option for you. Refinancing can reduce your monthly payment to make it more affordable for you. Refinancing allows you to borrow a new loan to pay off your old student loan. The new loan can save you money by having a lower interest rate or obtaining a new loan with a longer term length to lower the payments, but extend the number of months you have to pay. Check out our Student Loan Refinance Calculator to see how much you may be able to save.*  

 

During this unprecedented time, it’s helpful to have some relief from student loan payments if you are unable to make them. Explore all your options to see what works best for your financial situation. 

 


 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

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2020-07-13
How to Save for Retirement While Making Student Loan Payments

If you have student loans, you know how your debt can affect your ability to pursue your other financial goals, especially saving for retirement.    According to a recent survey by TIAA, 84% of responding adults said that their student loans negatively impacted the amount they were able to save for retirement. For those who aren’t saving for retirement at all, 26% said their student loan balances were why they couldn’t afford to do so.    However, putting off saving for your retirement is a costly mistake. It’s important to balance saving for your future with paying down student loan debt now. If you’re struggling to manage both priorities, here’s how to save for retirement while keeping up with your loan payments.  

Why you need to save for retirement now

When it comes to saving for retirement, the earlier you begin saving, the better. Compound interest and the power of annual returns can help your money grow over time. The longer you wait to start saving for retirement, the more you’ll have to invest your own money to have enough saved to retire comfortably.   For example, let’s say Jen begins saving for retirement at the age of 25. She contributes $250 per month into her retirement account, and her average annual return is 9%. By the time Jen reaches the age of 67, she’s contributed just $126,000 into the account, but her retirement account is worth $1,406,746.   By contrast, Jen’s friend Stephanie puts off saving for retirement until she pays off her student loans and doesn’t start contributing to her retirement until she’s 35. She starts putting $500 per month toward her retirement fund — double what Jen contributes each month. Like Jen, Stephanie earns an average annual return of 9%, but by the age of 67, her retirement fund is worth only $1,108,257. Stephanie contributed $192,000 of her own money — nearly $70,000 more than Jen — but her retirement account is worth approximately $300,000 less than Jen’s because Stephanie got a later start.   Chart showing the impact of saving for retirement earlier  

Retirement savings options

If you’re not sure how to save for retirement, here are some popular retirement plans.   

401(k) 

A 401(k) plan is an employer-sponsored retirement plan, meaning it’s a benefit offered through your job. With a 401(k), you invest a portion of your pre-tax salary in the investments you choose. Your contributions and the earnings are not taxed until you withdraw from the account.  

401(3)b 

401(3)b plans are very similar to 401(k) plans, but they’re offered to employees of non-profit organizations, churches, public schools, and universities. You make contributions to your retirement plan on a pre-tax basis, and your contributions and earnings aren’t taxed until you make withdrawals.  

IRAs

Another great option is to open an Individual Retirement Account (IRA) on your own. There are two options: a Traditional IRA and a Roth IRA.  

Traditional IRA

Anyone can contribute to a Traditional IRA, regardless of income. With an IRA, your earnings can grow tax-deferred, meaning you only pay taxes on your gains when you make withdrawals in retirement. Your contributions may be tax-deductible depending on your income level and if you have access to an employer-sponsored plan.  

Roth IRA

If you meet the income restrictions, a Roth IRA may be a useful option. With a Roth IRA, you make contributions with after-tax dollars. Why is that a good thing? While your contributions aren’t tax-deductible, your earnings and withdrawals are tax-free. And, you can take out the money you contribute to your Roth IRA — but not your earnings — before you reach retirement age without paying any penalties, so your Roth IRA can double as an emergency fund in a pinch.  

How to save for retirement while paying student loans

Finding a balance between saving for retirement and paying down student loan debt can be tricky, but it can be done if you follow these three steps:  

1. Make the minimum payments on all of your student loans

It’s important to stay current on all of your debt to maintain and protect your credit score and prevent racking up costly late fees. Keep making all of the required minimum payments on your federal and private student loans to avoid falling behind and entering student loan default.*  

2. If your employer offers matching contributions, contribute enough to earn the full match

If you have access to an employer-sponsored retirement plan like a 401(k) or 403(b) and your employer offers matching contributions, contribute enough to your account to qualify for the full match. Otherwise, you’ll lose out on free money that is a key part of your compensation package. Over time, skipping the match could cost you thousands of dollars.   For example, let’s say you make $40,000 per year, and your employer will match 100% of your contributions, up to 5% of your salary. That means if you contribute $2,000 per year to your retirement plan — 5% of your salary — your employer will match your contribution, giving you an additional $2,000 per year toward your retirement fund.   If you didn’t take advantage of the match while you were with that employer for five years, you’d miss out on $10,000. But the long-term consequences are even worse. If that money earned an average 9% annual return, in 30 years, that $10,000 would be worth over $147,000. That’s why it’s so important to take advantage of employer matching contributions if they’re available to you.   If your employer doesn’t offer a match, or if you don’t have access to an employer-sponsored plan, contribute to a Traditional IRA or Roth IRA  instead.  

3. Tackle your high-interest student loan debt

If you have extra money left over each month, put it toward high-interest student loan debt, meaning loans with an interest rate of over 5%. You can also consider student loan refinancing to lower your interest rate and reduce your monthly payment.   By refinancing your student loans, you can save money and free up more money in your monthly budget to save for retirement. Use the student loan refinance calculator to see how much you can save.*  

The bottom line 

When it comes to saving for retirement while paying student loans, you should develop a balanced strategy. Aim to both save for retirement and pay down your student loans at the same time. By taking advantage of employer contributions and tackling high-interest debt, you can improve your finances and build a secure future.  
  *Subject to credit approval. Terms and conditions apply.    Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Millennial reading news about student loans in coffee shop.
2020-07-10
This Week in Student Loans: July 10, 2020

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:
US Capitol

GOP Concerns Over Costs Could Limit Student Loan Relief In Next Stimulus

GOP Senate leaders are showing increasing concern about the costs of additional economic relief, particularly when it comes to student loan relief, as they weigh a second stimulus bill.

Source: Forbes

 

State Senate Chambers

Democrats Fail to Override Trump Veto on Student Loan Policy

This Friday, House Democrats were unable to override the Trump Administration's veto on a proposal to reverse the Education Department's strict policy on loan forgiveness for students misled by for-profit colleges. The House voted 238-173 in support of the override measure, coming up short of the two-thirds majority needed to send it to the Senate.

Source: ABC News

 

question mark

Study Finds Gen Z Borrowers Are Unaware of COVID-19 Student Loan Relief Programs

While the CARES Act allowed those with federal student loans to pause payments until September, a recent survey from Student Debt Crisis shows that Gen Z borrowers, in particular, were the least aware of the relief program.  

Source: CNBC

 

note saying pay off debt

Author Shares Her Big 'Wake Up Call' That Led Her to Pay Off $81,00 in Student Debt

35-year-old Melanie Lockert, the author of "Dear Debt," shared with CNBS the story of how she was able to pay off $81,000 in student loan debt over 9 years, with her big wake up call coming five years into repayment.  

Source: CNBC

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

picture of different loan term lengths
2020-07-08
Dash Through the Debt: How a Shorter Student Loan Term Adds Up

If you’re like most college graduates, you’re sick of your student loans. If you want to get rid of your debt once and for all, refinancing your loans and opting for a shorter student loan term is a smart strategy. You can secure a lower rate and pay off your loans years ahead of schedule while saving thousands.    Here’s what you need to know about shortening your loan term, as well as how much shortening your student loan term could save you.   

How long does the average graduate take to repay their student loans? 

When you graduate from college, you likely expect to pay off your student loans quickly. However, life often gets in the way of your plans, even if you make a good salary.    While the
Standard Repayment Plan for federal student loans is ten years, many students extend their repayment terms with income-driven repayment plans, forbearance or deferment periods, or by missing payments altogether. According to the One Wisconsin Institute, the average length of repayment for graduates with bachelor’s degrees is 19.7 years. If you have graduate student loans, the average repayment period is even longer.    With such a longer repayment term, you’ll pay thousands of dollars in interest charges on top of what you initially borrowed, adding to your loan's total cost. And, carrying such a heavy financial burden for decades can force you to put off other goals, like buying a house, starting a business, or even getting married.   

How to get a shorter student loan term

When you take out a student loan, you sign a loan agreement or promissory note where you promise to pay the loan back according to set repayment terms. The agreement will outline the loan’s interest rate, payments, and loan term.    Many borrowers don’t realize that you’re not stuck with those terms forever. If you’re unhappy with your current loan’s repayment terms or your finances improve, there is a way to change them: student loan refinancing.*    When you refinance your debt, you apply for a loan from a lender like Education Loan Finance for the amount of your total existing student loan debt. If you have both federal and private student loans, you can combine them so you’ll have just one loan to manage and one monthly payment to remember.*    The new loan will have different terms than your old ones, including the interest rate and monthly payment. When you apply for the loan, you can choose your own loan term that works for your goals and budget. For example, if you currently have a ten-year loan term, you can select a five or seven-year loan if you'd prefer a shorter term.   

Benefits of a shorter student loan term

Instead of making payments for 20 years or more, it’s a good idea to select a shorter loan term, if you can afford it. Opting for a shorter student loan term has many advantages:   

1. You can get a lower interest rate

When you have a long loan term, lenders consider you to be a riskier borrower and they charge you a higher interest rate. You’ll have a lower monthly payment, but the longer loan term will cost you more money in interest charges over time.    By contrast, lenders reserve their lowest interest rates for credit-worthy borrowers who choose the shortest loan terms. If you want the best possible rate, opting for a shorter loan term will allow you to save money.    You’re probably wondering, “How much can I save by shortening my loan term?” Let’s look at an example.    Pretend you had $30,000 in student loans with a ten-year loan term at 5% interest. By the end of your repayment term, you would repay a total of $38,184; interest charges would cost you $8,184.    If you refinanced your loans and chose a five-year loan and qualified for a 3.19% interest rate, you’d repay just $32,496 over the life of your loan. By refinancing your debt and selecting a shorter loan term, you’d save $5,688.   

Original Loan

Balance: $30,000 Interest Rate: 5% Loan Term: 10 Years Minimum Payment: $318 Total Interest: $8,184 Total Repaid: $38,184  

Refinanced Loan

Balance: $30,000 Interest Rate: 3.19% Minimum Payment: $542 Total Interest: $2,496 Total Repaid: $32,496

2. You’ll pay off your debt earlier 

When you choose a shorter loan term, you’ll be able to pay off your debt years ahead of schedule. Not only will you save a significant amount of money in interest charges, but you’ll also have the psychological benefit of not having to worry about debt any longer. If your student loan balance was causing you stress, that’s a significant advantage, and a huge weight off your shoulders.   

3. You’ll free up cash flow

Once you’ve paid off your student loans, you’ll free up extra cash flow. You’ll no longer have to make your monthly loan payment, so you can instead direct that money toward other goals, such as saving for retirement, boosting your emergency fund, or buying a home. If you use the above example, you’d have $542 per month you could use to fund your financial goals.    To put that in perspective, let’s say you paid off your loans by the time you turned 27. After that, you invested the $542 you were paying toward your student loans into your retirement nest egg. If you contributed $542 every month into your retirement fund and earned an 8% annual return, on average, your account would be worth over $1.8 million by the time you reached the age of 67.   

The bottom line

While extending your loan term may seem like a good idea to get a lower monthly payment, that can be a costly mistake. You’ll have to pay a higher interest rate and, over time, the longer loan term will cause you to pay back far more in interest charges.    Instead, consider refinancing your loans and selecting a shorter student loan term. You’ll be debt-free sooner, and you may save a substantial amount of money.    To find out how much you can save, use the student loan refinance calculator.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.