COVID + Credit: How Covid-19 Impacts Your Student Loans
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During the Coronavirus/Covid-19 pandemic, you may be experiencing a loss of income and feeling worried about how you'll stay on top of all of your bills. In addition to your obligations to pay for necessities such as housing and utilities, groceries and other bills, you may be struggling to pay down your student loan debt. However, you could be in luck, because when it comes to student loan payments, there's good news to report.
Thanks to recent action taken by the federal government in response to the Covid-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides automatic suspension of principal and interest payments on federally held student loans through Sept. 30, 2020.
Federal student loan borrowers will not need to take any action to suspend payments, as your loan servicer will suspend them automatically. Although the vast majority of student loans are eligible for this benefit, there are exceptions, including student loans under the Federal Family Education Loan (FFEL) Program, loans that are owned by commercial lenders and some Perkins Loans that are held by the institution you attended.
If you've already set aside money that you pay toward your student loan debt each month, this should come as a welcome relief – and as an unexpected way to catch up on other bills. If you are able, try to implement one of these three strategies during this suspended payment period:
- Use this six-month interest free period to pay down the balance of your loan so you'll pay less in interest when the automatic suspension expires in the fall.
- Repay bills using what's commonly called the snowball method. Start with a debt that you can pay off quickly, such as a credit card with a small balance or the remainder of a small loan. Crossing a debt off your list can build your confidence and help gain momentum in your overall effort toward becoming debt-free.
- Repay bills using what's often referred to as the avalanche method. To do this, list your debts according to interest rate from highest to lowest, and begin making payments for debts at the top of the list. By starting there, you will eliminate the debt that “costs” the most each month.
Unfortunately, if you have private student loans, this legislation does not apply. Although you may have to continue paying principal and interest, you should still check with your loan servicer about available aid if you are in need.
With a smart debt-repayment strategy, you may be able to make the most of a tough situation and start to take control of your financial future.