Posted by The TaxAdvocate Group, LLC

What the Student Loan Waiver Due to Coronavirus Still Means for You

What the Student Loan Waiver Due to Coronavirus Still Means for You

With the spread of the coronavirus, a lot of jobs have been affected. As a result, it might be pretty difficult for everyone to keep up with their bills. This is especially true of people with student loan debt. 

Almost everyone breathed a sigh of relief when President Trump announced that interest on all student loans should be waived until further notice. A week later, the Department of Education shed light on the implication of this.

Following the announcement, here are essential things that people with student loans still need to bear in mind.

  1. The Interest Loan applies to many, but not all student loans.

All student loans held at the federal level such as the following will enjoy interest waiver

  • Direct PLUS Loans

  • Direct Consolidation Loans

  • Federal Family Education Loans Direct Subsidized Loans

  • Direct Unsubsidized Loans

This, however, excludes FFEL loans held commercially and private student loans. Check with the National Student Loan Data System using your Federal Student Aid (FSA) ID to know the type of federal loans you have. There is a dashboard that gives details about the types of loans you have.

  1. Monthly Payment remains the Same while Interest is zero

Until around May 12, there will not be a new interest on a federal student loan that qualifies. This waiver, however, does not reduce the monthly payments. All payments made will be used to service the original loan amount and previous interest.

This comes with the advantage of a quick reduction of the entire loan amount when you pay. This reduces the overall amount you will have to pay.

  1. Payment can be paused with fewer consequences.

If your finance is taking a blow due to the Coronavirus pandemic, you can pause payment for a while. There will be no interest as long as you request for forbearance, at least till May 12. In addition, you can have your payment automatically suspended if you are more than 31 days late via forbearance.

This means that you can have the forbearance automatically kick in if you want to postpone payment by not doing anything. There is also no fear of this hurting your credit report since it takes 90 days before the late payment is reported to the credit bureau.

It is, however, important not to stop making the payment if you have the means. Even without the pandemic, there is an opportunity for forbearance. Besides, your loan servicer typically decides if you qualify for forbearance.

  1. If You want Forgiveness, Do Away With Forbearance

If you are after Public Service Loan Forgiveness (PSLF), forbearance will not help your cause. All your remaining balance on the federal Direct Loans can be waived, provided you have made payments for 120 qualifying months. Also, you must be working for the government. If you apply for forbearance, those months do not count.

If you cannot do without pausing payment because of the pandemic, it's fine. The qualifying months do not have to be consecutive. In addition, all the payments you have made in the past months do count. After your forbearance as well, future payments also count.

  1. Possibility of Raising the Next year’s Bill

With the student loan interest deduction, borrowers can deduct as much as $2,500 in student loan interest. You do not have to itemize as long as you qualify for this deduction.

This student loan interest waiver, depending on the situation of things and the duration of the 0% interest, might translate to an increase in the tax bill. This will affect the coming year's tax bill

  1. Consider Lower payments if Your income takes a Hit

You can reduce federal student loan payments with income-driven repayment plans. These plans come in four variations with maximum monthly payment at 10%, 15%, or 20% of your income. This can also extend your loan repayment timeline from 10 years to 20 or 25 years.

If there is any balance after the extension, it could be forgiven, but you still have to pay the tax. Anybody on the federal income loan can access the income-driven plans, not just during the pandemic.

Anyone on the income-driven repayment plan with a reduced income can submit their proof of income and ask for a monthly payment adjustment.

Since monthly payment from income-driven repayment plans will be reduced, the interest picks up faster. With the 0% interest rate, however, there will not be any new unpaid interest.



The TaxAdvocate Group, LLC
Contact Member