Personal Finance Coach: Tips for Navigating The Student Loan Moratorium

By Christina Richiez, TrustPlus Personal Finance Coach

Personal Finance Coach features stories, insights, and tips from TrustPlus to help workers and small businesses navigate the Covid-19 pandemic. Supported by funding from the Target Foundation, this blog offers tips from TrustPlus Personal Finance Coach Christina Richiez on how to handle the student loan moratorium. The bottom line: take action today to contact your loan servicer to discuss your situation.

For the 45 million people in the U.S. with student debt, many of whom were already struggling to manage their loans pre-COVID, the federal student loan moratorium has caused a lot of confusion, chaos, and stress. Since March, I’ve been fielding questions from my financial coaching clients: what are the details, what does it mean for me, do all of my student loans fall under it, what’s the timeline?

Often this confusion has been driven by insufficient communication from loan servicers. For example, one of my clients was in the process of returning her defaulted loans to good standing when her automatic payment for April was abruptly and automatically canceled. It turned out that under the CARES Act her rehabilitation plan would continue without her having to make any payments, BUT the missed payments would be owed as a lump sum when the moratorium ends. These complex and ever-changing policies have made it difficult for borrowers to make informed decisions about how to manage their loans.

To help you sort through the details and figure out what to do next, I’ve put together a quick Q&A. The bottom line: if you’re struggling to make student loan payments, contact your loan servicer now to discuss your situation.

WHAT IS THE STUDENT LOAN MORATORIUM AND WHEN DOES IT END?

While the student loan moratorium is in place, you’re not required to make any payments towards your loans, your loans won’t accrue any interest and you won’t be charged any late fees or penalties. These policies are in place automatically; you don’t need to do anything to avoid penalties. If you feel that your servicer hasn’t abided by these rules, contact them immediately!

While President Trump’s executive order in August initially extended the moratorium on federal student loan payments through December 31, 2020, Education Secretary Betsy DeVos recently announced an extension until January 31, 2021.

WHICH LOANS ARE COVERED AND NOT COVERED?

Only federal student loans (which are owned by the U.S. Department of Education) are covered by the moratorium. These days, most federal loans are disbursed through the Federal Direct Loan Program and fall into one of four categories:

• Direct Subsidized Loans to undergraduates based on financial need.
• Direct Unsubsidized Loans to undergraduates, graduate, and professional students not based on financial need.
• Direct PLUS Loans to graduate or professional students and parents.
• Direct Consolidation Loans.

Loans not owned by the Department of Education — loans held by banks, credit unions, online lenders, colleges/universities, etc. — are not covered by the moratorium so borrowers are still responsible for making their monthly payments.

CAN I CONTINUE TO PAY MY LOANS?

Yes, if you want to continue making payments, contact your loan servicer.

WHAT SHOULD I DO?

Contact your loan servicer now to discuss your situation if you’re struggling to make student loan payments, whether they are borrowed through the Department of Education or a private lender. If you have federal loans but you’re not sure who your servicer is, then call the Federal Student Aid Information Center at 1–800–433–3243 or check out the Department of Education’s student loan servicer page.

Don’t wait to reach out with questions about forbearance or deferment and to agree on a payment plan. Soon your loan servicer will likely be overwhelmed with calls and wait times could be (crazy) long. Regardless of your ability to pay, you’ll be best served by contacting them sooner rather than later. As long as your loans are in good standing, you have plenty of options available for avoiding default, even if the standard payment plan is too expensive, including Income-Driven Payment Plans, deferment, and forbearance.

The consequences of waiting and falling into default — from insane repayment rates, the loss of ability to borrow in the future, wage garnishment, to name a few — are both bad and many!

Prioritize the highest-interest debt. Any payments you make during the moratorium period will be applied to your loan’s principal balance, unless you have unpaid, accrued interest. Payments to the principal will enable you to pay off your loan faster. However, if you have other, higher-interest debt, a credit card for example, then you’re likely better off paying it off first since student loans won’t start accruing interest again until January at the earliest. TrustPlus Personal Finance Coaches can help you to prioritize to make the most strategic use of your hard-earned dollars. Speak with one of our personal finance coaches today for free.

Visit the Department of Education’s coronavirus student loan page for additional information.

Updated December 14 to reflect the latest extension of the student loan moratorium.