THE CENTRAL THESES
President Trump signed an executive act on Aug. 8 extending the moratorium on monthly student loan payments through the end of the year. It instructs Education Secretary Betsy DeVos to allow borrowers to temporarily suspend student loan payments due to economic hardship, but unless the Education Department overrides some of their rules, some types of loans may still earn interest after September 30th, and some borrowers may be denied the discharge altogether. Here’s what you need to know.
1. Most, but not all, federal loans can be deferred, but private loans cannot.
Federal loans make up approximately 90% of student loans and are eligible for suspension as long as they are in the possession of the US Department of Education. Some federal loans granted under the 2010 federal family education loan program are owned by commercial lenders and others that do not include the Department of Education. Borrowers with these loans can only take advantage of the suspension by pooling their loans into one new loan, which is not always a good option.
2. If your credit cannot be deferred, you still have a few options, some of which come with considerable disadvantages.
If your loans are subsidized Stafford loans that are not owned by the Department of Education and you are unemployed or in economic distress, you can apply for a deferment that will allow you to suspend payments and receive additional interest prevent. If not, you can request a deferral that suspends payments but allows interest to be charged. If you have more than one loan, you can combine them into a consolidation loan that would qualify for payment suspension and interest freeze, but then you will lose any interest rate cuts that you received for automatic payments or for making on-time payments. If you’re on a lending program, Consolidation could reset the clock for the 10 to 25 years of payments required before the balance can be canceled, said Mark Kantrowitz of Savingforcollege.com.
3. Think about where you can best use your money.
Unless you have accrued unpaid interest, any payments you make during this period will be counted towards the main balance of your loan so you can repay your student debt faster. If you have multiple student loans, route payments to the loan with the highest interest rate. But if you have credit card or other debts with a higher interest rate, or if you lack an emergency fund, it’s probably best for you to pause your student loans and use your money for those purposes instead, attorney Heather Jarvis said of the finance professionals Student loans taught.
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