All you need to know about COVID-19 and your Student Loans
As the COVID-19 pandemic continues to spread, the past few weeks may have felt like the longest year of your life. The U.S. government is striving hard to take all possible preventive measures for the protection of public health. Amidst the panic, students are suffering from the negative effects of the dreadful virus. Covid-19 is draining the global economy rapidly. With the large financial strain, students are lost in the ocean of misconception regarding student loan. Here is a guide to answer all the queries and details on the things you need to know about Covid-19 and your student loans.
What is COVID-19?
Covid-19 being an acronym for the Coronavirus disease 2019 is a respiratory disease that is spread from one person to another. It was first identified in the city of Wuhan, China in December 2019. The novel virus has spread worldwide infecting individuals by attacking their respiratory systems. It has been declared a pandemic by the WHO as it has spread across the continents.
How does COVID-19 spread?
COVID-19 is spread primarily by the respiratory droplets produced when an infected person coughs, sneezes, or comes in close contact with another person. The virus can live from 3-72 hours on various surfaces and hence, it can also spread by touching those contaminated surfaces with hands and then touching your face, nose, mouth and eyes. WHO alerts people to follow a good hand wash routine and a good respiratory hygiene to prevent further spread of the virus. Enough stress has been put on Self Isolation and Social Distancing which means maintaining a distance of at least 6 feet from people around you.
COVID-19 Impact on the Global Economy
The pandemic has caused severe damage to the global economy where economists predict that major economies will lose approximately 2.4 percent on the value of their Gross Domestic Product(GDP) over 2020. Economists also predict that the growth of the economy will cut down around 3 to 2.4 percent on the whole. To put this in numbers, the U.S will have a downfall of almost 3.5 trillion U.S. dollars in the economic output of 2020 at the rate of 2.4. Whereas, the 2019 global GDP was 88.6 trillion U.S. dollars with a reduction of 0.4 percent. Now you can imagine the impact caused by the global pandemic. This estimation was made before implementing the social distancing on what damage the virus could cause later. Dow Jones reports that there is a major downfall in the market and March 16, 2020 was recorded to have had the largest fall of 3000 points in a single day.
COVID-19 impact on the Student Loans
The student loan borrowed in 2019 was at the peak. About 9 million student loans were lent. But now, students realise that it is time to repay the federal and private student loans they borrowed. In the current situation, students may find themselves fearing the outbreak of the virus, some may panic on how to make payments on their debts due to the low income, unemployment or low financial stability. The government came up with a new law passed called The Coronavirus Aid, Relief and Economic Security (CARES) Act to help students postpone their payments to be made till 30/09/2020. Under this, the U.S. Department of Education jointly with the loan services regulated to suspend the monthly loan payments to be made on the loans till 30th September, 2020 while there is no interest accrued during this period.
Additionally, there are various Student Loan Repayment Plans you could learn on The College Monk portal to help you overcome the repayment phase easily.
The Coronavirus Aid, Relief and Economic Security (CARES) Act
On March 27th, 2020 the president signed a bill to implement the CARES Act to support the unemployed, small businesses, students and families during the economic downturn with relief funds. The Act is focused on the students to help them explore the easy repayment phase with various options and withheld loan collection for six months. The main highlights include,
- Relief funds for unemployed to start up business and also for the one with small business.
- Support students with a suspension of monthly installments to be made till September 9th,2020.
- Interest reduced to the lowest of about 0% during the six months and there is no interest accrued during this period.
- Helps students can make direct payments on their loan and not the interests added.
- Updated student loan accounts to cause no harm to the credit reporting due to late payments during the emergency.
- Providing funds to healthcare to encourage coronavirus testing and develop vaccines to treat patients with no cost.
- Increases eligibility of candidates for federal programs and expands unemployment insurance.
What you can do with a Federal Student Loan?
The CARES Act is applicable to federal loans except the perkin loans, Private loans, loans borrowed under FFELP as they are held under private banks and universities. There are various repayment plans with a federal program you could be eligible for.
- You could Consolidate multiple federal loans into one big loan to get a newer interest rate and a single due date. The payments you make can be reduced with an extended period of repayment.
- If you are aiming for a Loan Forgiveness Program, don’t worry, the period you are servicing during the emergency forbearance is counted to qualify for the program. This will count towards the 120 qualifying monthly payments you make.
- Choosing the Income-Driven Repayment plan will help you manage your monthly finance as only 10% is deducted from the overall monthly income you earn. This also helps in extending the repayment period to 20-25 years.
- As the law states that the Federal loan collections are paused for 6 months, you could still make direct payments to clear the loan sooner. Using this period as an advantage helps in eliminating debts sooner.
What you can do with a Private Student Loan?
Now that you know the federal laws cannot be implemented on the Private Student Loans, you could contact your loan servicer to find attractive options to make payments during this time. With fewer options compared to students who borrowed federal loans, you could also explore Student Loan Interest Rates to decide on the right student loan plan, private servicer. This article also helps you understand how the interest rates on private loans can make a difference.
Here is what you can do,
- Refinancing student loans depends on your creditworthiness. You could combine all the loans and get a lower interest rate compared to the previous rates with a due date to make payments. You could use this plan to make larger payments and clear debts sooner.
- Enrolling to make automatic payments on the private loans helps in further reduction of 0.25% rate of interest. This also helps in reducing your stress on forgetting due dates on payments.
- Some loan servicers offer a loan suspension for three months based on your requirements and also help you pay only the interest during the period.
Conclusion
The U.S department of education is working towards bringing new regulations that could help students to improve their current financial situation. It is important to keep yourself up-to-date with the changes going around you. It is better to take safety precautions than curing the damage you face later. The laws and regulations are mainly regulated to improve the economic conditions globally. Students can use this situation positively to pay their student loans with lowest interest. Referring to the StudentAid.gov/coronavirus, you could get information on the global scenario and how students can cope up with the government to reduce the negative impacts on your financial conditions.
About the writer: : I’m Rakshitha.N, a financial expert writer at The College Monk who appreciates writing. Budgeting and finance methods is a must that I wasn’t aware of during my time. My aim is to create easy guidelines towards exercising financial extensions, helping young dreams acquire solutions in the coming days without economical constraints. You can contact her on LinkedIn- https://www.linkedin.com/in/rakshitha-nagaraj-0310a8192
