Josmell Pérez has a master’s degree and has gone through the home buying process – more than once – but he says it’s always difficult to understand student loans.
“The mortgage system, credit cards and other aspects of finance make a lot more sense,” Pérez said.
He and his wife have several degrees and several student loans, but they don’t talk much about it. They just make their monthly payments and move on.
“It’s like a black hole. Once you get down, it’s like a rabbit hole,” Pérez said.
He heard that the federal CARES law, passed by Congress during the coronavirus pandemic, suspended interest on some student loans, but he wasn’t entirely sure it would affect him.
a an estimated one million North Carolinians have student loan debt, and many may be wondering how to manage their debt during the current financial crisis.
Rochelle Sparko is North Carolina Policy Director at Center for Responsible Lending, a Durham-based nonprofit that advocates for fair lending practices. She has some advice for Pérez or any student borrower.
“Please speak to your service agent and make sure your loan is covered before making the decision to pay or not,” advises Sparko.
For some, unemployment or financial uncertainty can mean it’s hard to pay off a student loan right now.
Others who have stable jobs and have just received a windfall in the form of a stimulus check, might wonder if now is the time to pay up front.
Even if your loan is not covered by the CARES Act, you may have other options available, which Sparko says your agent should be able to tell you about.
Calling your student loan officer can seem like a daunting chore, so here are some important things borrowers may need to know. Starting with, what’s new?
“The federal government made sure federal student loan borrowers did not have to make payments between mid-March and September,” Sparko said. “During this time when they don’t need to make payments, interest won’t accrue on their loans and they won’t be charged late fees.”
It’s called forbearance, and it’s good news for people with federal loans who are struggling to pay… but there are caveats.
What should borrowers do with this information?
“My answer is fundamentally different from student to student,” Sparko said. “The loan manager is actually the only entity that can give you complete information.”
The CARES law only applies to federal loans, so the first thing you should ask yourself is whether your student loan is federal or private. However, private loans can offer similar relief. In some cases, you may need to call your repairman and ask them.
“You have to be prepared to defend yourself to some extent when talking to them,” Sparko said.
When you call your loan manager, arm yourself with these questions:
- Who owns your loan, and is it federal or private?
- Does the owner of your loan offer forbearance during this period?
- Are there any costs associated with this forbearance? Will interest run? Will you be charged late fees or other fees?
- If you take advantage of tolerance, how will you get out of it? Do you need to discount your loan at the end of the forbearance period or can you defer these payments until the end of your loan?
- Will taking advantage of a forbearance period affect your credit score?
What if anyone was wondering whether or not to use a federal stimulus check to pay off their student loans. Is it a good idea?
“If you could use your stimulus payment to finish paying off your student loan debt, then maybe just paying off debt is the right decision for you,” Sparko said.
Since no interest will accrue on federal student loans until September, borrowers who continue to pay will see all of those payments go toward the loan principal, helping them pay off their loan faster. There’s also no harm in waiting for the economic uncertainty this year and paying later.
“I think the most important thing to remember is that if your loan is covered under the CARES Act, nothing, nothing bad will happen if you make a zero dollar payment,” Sparko said.
For some, there may be a downside to continuing to pay a federal loan.
Sparko says it might not be beneficial for borrowers who are enrolled in an income-based repayment plan or requesting a utility loan forgiveness to pay a federal loan during this forbearance period.
Let’s say, like Perez, you ask for a utility loan discount. This program allows people who work for non-profit organizations, in government or in education to obtain the cancellation of their loans after several years of public service.
Pérez works for UNC-Chapel Hill and plans to count his time there for the loan cancellation. So what about his family?
“They might want to consider not making payments, even if they are able to,” Sparko said. “Because those months of zero accrued interest-free payments are going to count as the date they get forgiveness.” “
In other words, if Pérez doesn’t make any payments until September, he could still count those months for his public service. He said he was shocked when he found out about this and had no idea that there might be a downside to repaying his loan.
“The hardest part about it is now knowing this I’m like, ‘Oh, I have to make sure I find time to make that phone call throughout the rest of my life,'” Pérez said. .
As difficult as it may be, many borrowers could benefit from this appeal.