Take action now so you don’t fall off the student loan cliff on February 1
The suspension of payments and the accumulation of interest on most types of federal student loans, in effect since March, has been extended until January and is scheduled to end on February 1, 2021. Don’t be caught off guard.
It’s highly likely that President-elect Joe Biden will maintain this suspension while the COVID-19 pandemic still turns American life upside down, but no one can predict the future. The reality is that active duty members, their families, veterans and survivors who hold federal student loans should be ready to resume their payments in February, and certainly at some point in 2021.
A lot of people don’t realize that a large percentage of veterans have student debt. The academic success of veterans has reported that in the 2015 to 2016 school year, 11% of two-year public institution veterans had federal student loans, 32% of four-year public and nonprofit veterans had owed debt. Federal studies and 42% of veterans of for-profit institutions had federal student debt.
When these numbers are associated with the fact that more than 200,000 active service members hold over $ 2.9 billion in student loans, it becomes clear that the expiration of the suspension of payments and the accumulation of interest on most federal student loans, which has been in place since the passage of Congress the CARES law almost 10 months ago, has the potential to seriously damage the financial health of active-duty military personnel, veterans, their families and survivors.
In short, you should be prepared for your federal student loan payments to restart at some point in 2021. Here’s how.
If you have student loans and are struggling economically, the most important steps you can take are to start budgeting for payments and reconnect to your accounts. Examine your monthly bill and recalculate the total loan repayment time with tools available on the Department of Education website.
Then go to the Department of Education website register for income-based reimbursement (IDR). This caps your monthly payment at 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 advise people to take out federal student loans when possible.
Participation in IDR plans has several advantages. In addition to capping your monthly payments, it will allow you to cancel your loans after 20 or 25 years, depending on the type of plan you choose. For example, IDR is one of the conditions to qualify for the utility loan forgiveness, which clears your loans after ten years and 120 qualifying payments.
You cannot enroll in any of the four IDR plans if you default on all of your federal student loans or only have PLUS loans that you borrowed as a parent. It is important to note that there is no application fee to complete an income-based repayment plan application, despite what some private scam companies will tell you.
If you already have an IDR plan, make sure you recertified your income before January, especially if the recertification deadline was during the hiatus period. If you are already on an IDR plan and still cannot pay your monthly bill, recertifying or requesting a recalculation given your current situation may result in lower monthly payment.
If you are facing economic hardship due to the pandemic and cannot afford to make payments but do not qualify for a $ 0 monthly invoice on the IDR, request a deferral of unemployment on your student loans may be the best option.
Deferring unemployment will usually suspend monthly payments for a total of 36 months, but borrowers will need to reapply every six months and show proof of unemployment benefits and that you are actively looking for a job. Interest will also be suspended, but only for subsidized loans – it will continue to accrue for unsubsidized loans.
Here are some emergency aid programs, as well as healthier forms of credit, to choose from:
- Members of the active service and retirees are entitled to zero-interest loans from relief societies: the Air Force Aid Society, Army emergency relief, and the Navy and Marine Corps Relief Society.
- Emergency assistance from veterans service organizations such as the VFW Emergency Grants Program, Disabled American Veterans Grants for Disabled Veterans and The American Legion Emergency Financial Aid Program.
- Unsecured consumer loans from banks, credit unions or other non-bank lenders. Credit unions in particular offer more favorable consumer credit terms to their members. Federally chartered credit unions are subject to an 18% APR usury limit, with the exception of alternative payday loans which can carry up to 28% APR.
- Local loan cooperatives or faith groups.
- Discover USAA Educational Foundation Debt Destroyer Videos and the Consumer Financial Protection Bureau blog post on how to stay in control of your finances.
- If you are having problems with a financial product or service, file a complaint with the Consumer Financial Protection Bureau. here.
- Veterans Education Success offers free attorneys to help you assert your rights regarding your student loans and can help you meet with your congressional representatives to speak in your hometown media. Contact us at [email protected]
Mike Saunders is director of military and consumer policy at Veterans Education Success.
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