Paying off Student Debt During COVID-19

Even before the COVID-19 outbreak, Americans were struggling to pay off the nearly $1.7 trillion owed in student loan debt. Nearly a third of borrowers were in default before - and that number is likely to grow in the coming months as the COVID-19 pandemic grows more serious. With local and national leaders calling on people to limit social interactions, self quarantine, and work from home, many are facing reduced hours at work - or no work at all. 

While we work for more permanent solutions, there are a couple of ways you can try to reduce your student loan payments:

  1. Switch to a plan with lower monthly payments tied to your actual income. If you have federal loans, you can switch to an income-driven repayment program online.After a conversation with your servicer and filling out a short form, your servicer will confirm your income with the IRS and adjust your payments accordingly. While it may take three weeks for your new loan repayment program to be started, the lower payments will last for a full year, and will be adjusted annually after you file your taxes. 

  2. Ask for deferment or forbearance - a temporary pause on your accounts - from your servicer. Many loan providers recognize these unusual times are putting a strain on individuals finances and they’d often prefer you eventually to pay off your debt on a longer timeline. While interest will still accrue during this pause, you will remain in good standing. This period in deferment may not count towards any loan forgiveness program you are part of, so ask your servicer which program is right for you. They’ll point you towards a short form to request the pause on your repayment.

  3. Already in default? Look at federal loan cancellation or forgiveness programs to see if any are right for your situation.Three of the most common reasons for debt cancellation are if you attended a for-profit college that closed, have been a teacher for five years in a low-income community, or if have a permanent disability, 

  4. If you have private loans, discuss your options with your lender. Given that interest rates are falling in response to the slowing economy, refinancing at a lower interest rate might be possible.

How to Reach Out

When reaching out to your loan servicer to explore these options, you’ll need some critical information.

  1. Financial information: Have your social security number and login or account number, and know the most recent address you filed your taxes at - it will be used to automatically verify your most recent reported income. 

  2. Explain your current circumstances: Calmly and clearly explain whether you're unemployed, at reduced hours or other details of your situation, as that might help them steer you into a more suitable plan. You will want to have a picture of what your overall budget is so you can explain what upcoming bills you have and what you’re doing to maximize your ability to repay. And if you’re entering an income-driven repayment, this information will help your servicer determine what discretionary income you actually have to put towards your loans. 

  3. Stay calm: These are stressful times, and it’s a hard situation. The customer service person you’re working with has been talking to others in these situations all day, and may have limited solutions. Be as patient as possible to enlist them in helping you identify a solution, and know that it could take a few weeks to get your new payment plan in place.

  4. Try multiple avenues of contact: Keep in mind that phone customer service is likely to have long wait times, or be affected by the closure of physical call centers to prevent the spread of the coronavirus. Reach out to online customer service first to get help, or refer to the Department of Education’s frequently asked questions for students and borrowers.

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