Coronavirus sets student loan interest rates to historic lows — how to save money by refinancing

If you’re worried about making student loan payments, here are a few ways you can get some help from your student loan lenders. (iStock)

In March, President Trump announced that individuals with federal student loans — whether you're an undergraduate student, graduate student or beyond — would have the option to pause their financial aid payments for up to 60 days without accruing interest fees or paying penalties. Trump issued the debt and interest rate waiver in response to the COVID-19 emergency. The loan relief waiver should help ease some concerns over repaying your loans while the economy struggles with mass layoffs amid a national emergency.

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On March 27, the Trump administration also signed a coronavirus stimulus package that delayed loan repayment on federal student loans until September of 2020. Here are some ways borrowers can take advantage.

Refinance your student loan

Interest rates on student loans are low (thanks in part to a Fed Reserve interest rate cut) right now. If you have private student loans, now may be an excellent time to consider refinancing.

Credible can help you compare multiple lenders to find the best student loan refinancing rates available.

You may consider refinancing your student loans if you need to consolidate loan payments, or you would substantially improve your current interest rate through a refinance.

If you have a federal loan, you can combine your loans at no additional charge. However, if you have a federal student loan, you may want to consider holding off until at least September. Right now, borrowers have a 0 percent interest rate on all federal student loans and the option to skip payments until the end of September.

If you do decide to refinance your student loans, make sure you do your homework. Use your loan amount and estimated credit score to determine which student loan refinancing lender would benefit you the most financially — potentially saving you hundreds or even thousands of savings over the years.

Credible's refinance calculator (or student loan calculator), which takes into account your loan balance and new loan interest rate, could also be a useful tool to estimate how much you could save. You should try contacting a financial advisor if you have more questions about paying for college or repayment options.

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Other money-saving options

If you need further help following the waiver period, you may consider applying for loan forbearance or an income-based repayment plan. Forbearance will suspend payments for an additional amount of time, but your account will continue to accrue interest. An income-based repayment plan could help lower your monthly payment.

If you have federal student loans, you have the option to continue making monthly payments. If you continue to make monthly payments, any money you contribute towards your student loans will go directly toward paying down the loan amount.

If you do not want to make payments but would instead set aside that money towards another bill or to help cover expenses in the event of a job loss, you can skip monthly payments with no penalty. Federal loan lenders should automatically stop processing payments without anything from you. However, you may want to check your online accounts, mobile apps or talk to your lender if you have questions.

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Your lender should provide written notification via e-mail or regular mail as the changes take effect.

An important note: You do not have to pay any fee to suspend payments. If someone contacts you asking that you pay money to put your student loan payments on hold, it is a scam.  

What to know about student loan interest waivers

The student loan interest waiver allows loan borrowers to defer payments until September (student loan interest is also on hold during that time). In addition to postponing your payments, all involuntary collections of student loans are suspended. The suspension means that borrowers with wage garnishments and tax-refund garnishments will not be charged their student loan payments until September.

Loans included in the student loan interest waiver include all rates for federal student loans, many Federal Family Education Loans (FFELs), and loans that qualify for the Public Service Loan Forgiveness program.

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The federal waiver does not include student loans held by private lenders. If you have private student loans or Perkins loans owned to your school, you will need to talk to them about payment arrangements. While private lenders can suspend payments and interest, they are not required to do so.

How do I sign up and how long will it last?

If you have federal student loans, you do not need to do anything. The lenders will automatically suspend payments through September 30, 2020. If a private company holds your student loans, you will need to contact your lender to determine what type of assistance they are offering.