What to do if you can’t pay your loans during the pandemic
As the coronavirus pandemic continues and the economy recovers, some American workers still face financial uncertainty.
For those who are struggling to keep up with their debt, there are relief options available from banks, lenders, and the federal government. If you can’t or won’t be able to pay off your loans soon, one of these programs can help.
Federal student loans
In August, the US Department of Education extended the federal student loan payment break until January 31, 2022. The break was scheduled to expire on September 30, 2021, and the administration made it clear that it was the last extension. For an additional four months, federal student loan borrowers and borrowers with delinquent Federal Family Education Loans Program loans can take advantage of several relief measures.
Interest exemption: Federal student loan interest rates will remain at 0% until the end of January. Borrowers don’t need to take steps to put this in place. However, check your student loan statements monthly to make sure interest is not charged on your federal loans until January.
Suspension of payment: Federal student loan borrowers also enjoy extended relief when it comes to monthly student loan payments. Payments on direct loans held by the Ministry of Education are suspended until January 31. This suspension of payment is also automatic.
This suspension doesn’t make your student loan debt go away, but it does save you money on monthly payments until January. If you are working on the civil service loan forgiveness, you will continue to receive credit during the suspension period if you are working full time for an eligible employer.
Borrowers can also choose to continue making payments during this temporary deferral. If you continue with your regular student loan payments, the entire payment will be applied to your principal balance, helping you pay off debt faster.
If you are using automatic payments, these may have been automatically suspended at the start of the deferral period. Contact your provider to restart automatic payments.
Collection activities suspended: Federal student loan collection activities have been suspended since March 2020, and overdue Federal Family Education Loans Program loans were added to the list of eligible loans in March 2021. Borrowers in default of loans FFEL since March 13, 2020 will have their wages and income tax returns entered automatically restored, their overdue accounts are in good standing and refunds are offered on voluntary payments made from that date until January 31.
Private student loans
Private student loan debt is not covered by presidential action – there are no government protections that require private lenders to waive interest or defer payments for borrowers.
However, your private lender may offer a hardship assistance program or a temporary student loan forbearance. For example, Earnest offers short-term student loan forbearance for eligible borrowers upon request.
If you cannot pay your private student loans because the pandemic has affected your income, contact your lender immediately. Eligibility for hardship assistance programs varies among lenders.
Many banks are mobilizing to waive fees and help consumers stay on track with their loans despite lost income. For example, Marcus by Goldman Sachs allows clients to defer payments on their personal loans for a month without accumulating interest.
If you are unsure if your lender offers personal loan assistance, contact them directly to ask. New programs may be announced over time, so check back regularly to see if help is available.
Home equity loans
Homeowners with home equity loans should contact their lenders if payments cannot be made on time. Some financial institutions offer a temporary deferral on home equity loans for those who are eligible.
For example, Bank of America offers a payment deferral of three months or more if your income has been affected by the coronavirus pandemic. If you’re having trouble staying on top of your home equity loan, call your lender to find out more about your options.
Other steps you might take
Speaking with your lender as soon as possible is one of the most effective ways to get immediate payment relief in times of financial difficulty. In addition to setting up a deferral or forbearance, there are a few other things you can do if you can’t repay your loans:
Applying for unemployment benefits: The American Rescue Plan Act of March 2021 brings the total number of weeks in which individuals can receive unemployment benefits to 79 weeks.
Reduce discretionary spending: Review all of your non-essential expenses, like dining, shopping, and streaming subscriptions. Find areas that can be cut from your monthly budget to free up money for loan repayments.
Refinance your loans: If your credit is strong, you may qualify for today’s low interest rates. Refinancing can help you lower your interest rate and lower monthly payments.
Consider a Coronavirus Hardship Loan: Available from some banks and credit unions, coronavirus hardship loans are short-term loans that usually have little or no interest. Although the loan amounts are not very large, these loans come with favorable terms for the borrowers.
No matter what type of loan you’re struggling with, there’s a good chance your lender has options that can take some of the financial pressure off. The best thing to do is to contact your lender if you won’t be making the next loan payment.