Due to the financial downturn and widespread layoffs brought on by the coronavirus pandemic, a few of your shoppers or their members of the family could also be struggling to pay their student loans proper now. The federal authorities has provided debtors some aid: The Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, suspended funds for debtors with loans held by the Department of Education (ED) from March 13 by means of Sept. 30. But debtors with different forms of loans have choices as properly.
Relief by means of the federal authorities
Under the CARES Act, shoppers with Direct Loans or Federal Family Education Loans (FFEL) held by the ED don’t must make any funds till Sept. 30. Interest on these loans has additionally been waived by means of Sept. 30.
The suspension of student loan funds is computerized. Borrowers should not have to take any motion to have their funds halted, even when they’ve computerized debit arrange, stated Ross Riskin, CPA/PFS, assistant professor of taxation on the American College of Financial Services and the writer of The Adviser’s Guide to Education Planning.
That’s necessary for shoppers to know, Riskin stated, as scammers have been contacting some debtors claiming they want their info for them to be eligible for student loan aid.
Borrowers who made a fee after March 13 can have it refunded in the event that they select, he stated.
For debtors working towards public service loan forgiveness, this six-month interval will depend towards loan forgiveness even when they don’t make any funds, so long as they’re nonetheless employed full time by eligible employers.
For at the least 60 days following March 13, the ED won’t garnish the wages of debtors with federally held student loans who’re in default, or offset cash from their Social Security checks or federal tax refunds. Anyone who had cash taken out of a tax refund examine between March 13 and March 27 could have it refunded, stated Melissa Towell Maguire, a student loan counselor for not-for-profit credit counseling company Consumer Debt Counselors.
Eligibility for aid by means of the CARES Act
Only debtors with loans held by the ED are eligible for aid underneath the CARES Act. Borrowers with non-public loans, Perkins loans, or FFEL loans not held by the ED are usually not. FFEL loans have been issued previous to 2010, and the bulk are nonetheless held by industrial lenders and have been assured by the federal authorities, Riskin stated, so debtors should do their due diligence to ensure they’ve eligible loans if they’re searching for aid.
To discover out whether or not their loans are coated by the CARES Act, debtors can contact their loan servicers or go to studentaid.gov. Borrowers in default can go to studentaid.gov and obtain their file from the National Student Loan Data System to see whether or not their loans are assured by the ED’s Default Resolution Group, a state assure company, or one other assure company, Maguire stated.
Options for debtors who aren’t eligible for aid
If your shoppers or their members of the family have student loans that aren’t coated by the CARES Act however are discovering it arduous to make funds, there are alternatives.
Borrowers can acquire a deferment any time there’s a nationwide emergency, even when they’ve privately held loans, Maguire stated. These deferments aren’t made accessible routinely, so debtors might want to contact their loan servicer.
Some debtors whose loans aren’t coated by the CARES Act could also be tempted to consolidate their loans into federal loans to allow them to qualify for the six-month suspension of funds. Think fastidiously earlier than taking such a step, Maguire and Riskin warning.
“It can take anywhere from six to 12 weeks to be approved for a consolidation,” Maguire stated. By the time a borrower is authorized, she or he would possibly fall underneath the CARES Act for less than a month or two, she stated.
Borrowers who’ve FFEL loans and are working towards loan forgiveness underneath an income-driven compensation plan, corresponding to income-based compensation, have to be particularly cautious about consolidation, as consolidating to a Direct Loan will “reset the clock” towards loan forgiveness, Riskin stated. For instance, if a borrower has made 100 of the 300 funds wanted to qualify for loan forgiveness after which consolidates to a Direct Loan, not one of the 100 funds beforehand made would depend towards forgiveness if the borrower chooses to enroll in an income-driven compensation plan for the brand new loan.
Options for shoppers who’ve misplaced jobs or had their hours decreased
Anyone submitting for unemployment also can get an unemployment deferment of their student loans, Maguire stated, which can permit them to postpone funds for six months. Borrowers can file for added deferments as soon as this six-month interval ends.
Clients who’ve been furloughed or had their work hours decreased could wish to apply for income-driven compensation plans (IDRPs), each Riskin and Maguire stated. Borrowers who’re already on an IDRP can recertify their earnings, letting their student loan servicer know their earnings is decrease, so their funds could be adjusted.
Clients who’re in a position to pay their student loans ought to achieve this
Borrowers are nonetheless in a position to make student loan funds on loans held by the ED between now and Sept. 30 in the event that they select. In truth, it’s useful for them to take action, stated Riskin, as a result of they’ll be capable to make the most of the zero p.c rate of interest. Any funds made between now and Sept. 30 will go immediately towards principal after a borrower has paid any curiosity that accrued previous to March 13, which means debtors can pay much less on their loans total.
In truth, as a result of present low-interest-rate setting, many debtors could think about turning down the advantages of the CARES Act relating to student loans and refinance with a non-public loan, Riskin stated.
“In certain instances, you may be better off forgoing the federal benefits if you can get a 2% or 3% interest rate and favorable repayment terms in the private loan market,” he stated. “The savings may be greater in the long run.” Borrowers ought to communicate with a CPA monetary planner to find out if this can be a good choice for them, he stated.
For extra information and reporting on the coronavirus and the way CPAs can deal with challenges associated to the outbreak, go to the JofA’s coronavirus sources web page. For extra info on student loan planning, learn The Adviser’s Guide to Education Planning (PFP Section membership required).
— Courtney L. Vien ([email protected]) is a JofA senior editor.