Private student loans aren't suspended — but here's what you can do

Everything private student loan borrowers need to know amid the CARES Act federal student loan pause. (iStock)

If there is one silver lining to the coronavirus pandemic, it could be the temporary relief for student loan borrowers — particularly, those with federal student loans. The CARES Act in March suspended interest and payments on federal student loans through September. In August, President Trump extended this loan payment pause through the end of the year.

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However, private student loans aren't suspended, so what can borrowers paying for college with these types of loans do?

Below are some questions about student loan options private loan borrowers may have.

Does the CARES Act apply to private student loans?

Unfortunately, federal loan relief under the CARES act does not extend to borrowers who hold private student loans. These changes, while welcome, can be especially confusing if you owe balances on a mix of both federal and private loans.

WHAT THE CARES ACT MEANS FOR YOUR STUDENT LOANS

Can you get a forbearance on private student loans?

A coalition of states is offering relief for private loan borrowers including forbearance for up to 90 days, waived late payment fees, and a suspension of collections. They include:

  • California
  • Colorado
  • Connecticut
  • Illinois
  • Massachusetts
  • New Jersey
  • New York
  • Vermont
  • Virginia
  • Washington
  • Washington, D.C.

Other states are also suspending debt collections and wage garnishments, but this varies by state and loan servicer. To find out what options are available to you, contact your loan servicer.

4 THINGS TO DO BEFORE STUDENT LOAN FORBEARANCE ENDS

What if I do not live in a state where relief is available?

There are two main courses of action for private student loan borrowers struggling to make payments: loan refinancing and forbearance.

  • Refinancing: Your same debt goes into a new loan at a lower interest rate.
  • Forbearance: Suspending payments until a later date while interest accrues on the balance.

Refinancing

Refinancing may not appear to save any money in the short term, but with interest rates at record lows, now is a good time to get a lower rate and a lower monthly payment.

Use Credible to shop refinance rates across multiple private lenders. You can browse loan products, loan repayment plans, and more on their multi-lender marketplace.

This student loan refinancing calculator can also help borrowers visualize potential new monthly payments and a new payoff timeline.

While your monthly payment will change, a new refinance loan shouldn't cost you anything. Credible's partner lenders do not charge loan application fees, prepayment penalties, or origination fees so you can easily find an affordable option (without impacting your credit score).

STUDENT REFINANCING RATES GOING DOWN - HERE'S WHY

Those with variable rate loans may have a hard time refinancing as their interest rate always mirrors the Federal Reserve Funds rate. Since this rate was slashed to 0% in March 2020, variable-rate private loans may already be at the lowest rate.

Should I continue to pay my student loans?

The short answer is: yes. If you have private loans and can pay them during this time you should. Because absent some type of forbearance, these loans are still accruing interest which means skipping payments only adds to the overall balance and it will take longer to repay. Missing payments on any type of debt account can also seriously impact your credit.

But if you can’t afford to repay right now, you should absolutely look into forbearance options with your servicer. Those who can afford to still make payments, however, should take advantage of this time to make additional debt progress while interest rates are at record lows and federal loan payments are on pause.

SHOULD YOU CONSOLIDATE OR REFINANCE YOUR STUDENT LOANS?

Will not paying affect student loan borrowers in the future?

If you have private student loans and stop payment without contacting your loan servicer, it could have big ramifications for your credit score. A low credit score will definitely impact your ability to qualify for a mortgage loan, credit card, student loan and other types of loan products in the future.

What’s the best action for private loan borrowers?

While talking directly to your lender may feel intimidating at this time (especially if you cannot pay or have already missed payments) it’s actually the best thing you can do for your financial situation.

It is also the very first thing you should do if you sense you’ll have difficulty making payments at any point in the future.

  • First, check your loan servicer’s website for any updates on COVID-19 related relief programs.
  • If they do not have any relief programs in place, give them a call and ask if they’re offering forbearance or any type of rate reduction program. A rate reduction could either temporarily reduce your monthly payment, your interest rate, or both.
  • If you have both private and federal loans (and can afford to do so), use money earmarked for federal payments since those payments are suspended and at 0% interest to make progress on your private loans.

The good news is that even in a “normal” economy, many providers do offer hardship and/or unemployment forbearance. Fortunately, getting temporary relief from your servicers is often as easy as placing a call and providing some type of supplemental information such as unemployment verification or bank statements.

FIXED-RATE OR VARIABLE LOAN OPTIONS: WHICH IS BEST FOR YOU?