Act Now So You Don't Fall Off the Student Loan Cliff on February 1st

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The suspension of payments and interest accumulation on most kinds of federal student loans, in effect since March, has been extended through January and is scheduled to end February 1, 2021. Don’t get caught off guard.

There is a high likelihood that President-elect Joe Biden will continue that suspension while the COVID-19 pandemic is still upending American life, but no one can predict the future. The reality is that active duty service members, their families, veterans and survivors who hold federal student loans should be ready to resume their payments in February, and definitely at some point in 2021.

Many people don't realize that a large percentage of veterans hold student loan debt. Veterans Education Success, has reported that in the 2015 to 2016 school year, 11% of veterans at two-year public institutions had federal student loans, 32% of veterans at four-year public and nonprofit institutions had federal student debt, and 42% of veterans at for-profit institutions had federal student debt. 

When those numbers are paired with the fact that over 200,000 active duty service members hold over $2.9 billion in student loans, it becomes clear that the expiration of the suspension on payments and interest accumulation on most federal student loans, which has been in place since Congress passed the CARES Act nearly 10 months ago, has the ability to severely impact the financial health of active duty servicemembers, veterans, their families and survivors.

In short, you should get ready for your federal student loan payments to restart at some point in 2021. Here's how to do that.

If you have student loans and are facing economic hardship, the most important actions you can take are to start budgeting for payments and to log back into your accounts. Look at your monthly bill and recalculate the total timeline for paying off the loans with tools available on the Education Department's website.

Then, go to the Education Department's website to enroll in income-driven repayment (IDR). This caps your monthly payment to a manageable percentage of your income and takes into account your family size. Unfortunately, private student loans do not come with this protection, which is why we counsel people to take out federal student loans when at all possible.

Participation in IDR plans has several benefits. In addition to capping your monthly payments, it will allow your loans to be forgiven after 20 or 25 years, depending on the type of plan you choose. For example, IDR is one of the requirements to qualify for Public Service Loan Forgiveness, which erases your loans after ten years and 120 qualifying payments.

You can't enroll in any of the four IDR plans if you are in default on all of your federal student loans or if you only have PLUS loans you borrowed as a parent. It is important to note that there is no application fee to complete an income-driven repayment plan request, despite what certain scam private companies will tell you.

If you are already on an IDR plan make sure you have recertified your income before January, especially if the recertification deadline was during the pause period. If you're already on an IDR plan and still can't pay your monthly bill, recertifying or asking for a recalculation given your current situation can lead to a lower monthly payment.

If you are facing economic hardship due to the pandemic and can't afford to make any payments but don't qualify for a $0 monthly bill on IDR, applying for an unemployment deferment on your student loans may be the best option.

Unemployment deferment will generally pause monthly payments for a total of 36 months, but borrowers will have to reapply every six months and show proof of unemployment benefits and that you are actively seeking work. Interest will also be paused but only for subsidized loans -- it will continue to accrue for loans that are unsubsidized.

Here are some emergency assistance programs, as well as healthier forms of credit, to choose from:

  • Active duty service members and retirees are eligible for zero percent interest loans from the relief societies: the Air Force Aid Society, Army Emergency Relief, and the Navy and Marine Corps Relief Society.
  • Emergency assistance from Veterans Service Organizations like the VFW’s emergency grant program, Disabled American Veterans’ grants for disabled veterans and The American Legion’s emergency financial assistance program.
  • Unsecured consumer loans made by banks, credit unions, or other non-bank lenders. Credit Unions in particular offer their members more attractive terms on consumer loans. Federally-chartered credit unions are subject to an 18% APR usury limit, with the exception of Payday Alternative Loans that can carry up to a 28% APR.
  • Local lending cooperatives or faith-based groups.
  • Check out USAA Educational Foundation’s Debt Destroyer videos and the Consumer Financial Protection Bureau’s blog post about how to stay on top of your finances.
  • If you’re having problems with a financial product or service, submit a complaint to the Consumer Financial Protection Bureau here.
  • Veterans Education Success offers free lawyers to help to go through your rights regarding your student loans and can help you meet with your Congressional representatives to speak out in your hometown news media. Contact us at help@vetsedsuccess.org.

Mike Saunders is Director of Military and Consumer Policy at Veterans Education Success.

 

 

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