Worried About Your Student Loan Payments? Here Are Your Options

Millions of Americans have found their hours cut or jobs put on hold in recent days as the economy tumbles due to measures to slow the spread of the coronavirus.

While unemployment claims surge, lawmakers in Washington D.C. are racing to put together a stimulus package to help those workers stay afloat, and the idea of temporarily halting the collection of federal student loans is gaining traction as part of that relief. Some 45 million Americans owe student debt, with an average monthly payment of nearly $400.

The Trump Administration has already waived interest on most federal loans. Republican senators have also pitched a three-month interest-free suspension of payments on federal loans. Democratic lawmakers, meanwhile, are pushing for more, including $10,000 in forgiveness and payments covered by the U.S. Education Department while the coronavirus crisis continues.

But what if your bills are due this week or next, and you can’t wait for Congress to make a deal? Federal student loans—which comprise about 90% of the country's more than $1.5 trillion in student debt—may be the easiest of your monthly bills to amend.

"There’s a lot of flexibility in there for someone whose income has dropped significantly or even dropped to zero,” says Kevin Mahoney, a certified financial planner and founder of Illumint.

That means you can pause or reduce your loan payments, and use your limited cash flow to pay for necessities. Here are some of your options to do that.

If Your Payment is Due Soon

Forbearance is will be the quickest way to pause your debt. It's also an option if you feel you still can't afford your monthly bills under other repayment plans. (More on those plans below.)

Any one can sign up for a forbearance, and Secretary of Education Betsy DeVos announced Friday that she had told loan servicers to grant an administrative forbearance to any borrower with a federally held loan who asks for one. The forbearance will last for a period of at least 60 days, beginning on March 13, when Trump originally announced plans for an interest waiver.

Experts generally advise borrowers to avoid forbearance (and deferment) and use them only as a last resort. But right now, with the interest waiver, they are a better option. Under the waiver, servicers will set interest rates on all federal loans to 0%. (Read more about how that policy works here.)

To sign up for forbearance, start by going to your student loan servicer's website. Scott Buchanan, executive director of the Student Loan Servicing Alliance, says that may be the quickest way to get your payment sorted right now, as the loan companies—like many financial services customer service centers—deal with an uptick in phone calls.

“Ninety percent of what someone is going to need to do right now will be on a servicer’s website," Buchanan says.

If your loans are already delinquent, meaning you're are more than a month behind, your payments will be automatically suspended, per DeVos's announcement.

If You Have Time Before Your Next Due Date

If your pay has dropped, you can enroll in a repayment plan that sets your monthly bill based on how much you’re earning in what is called income-driven repayment. This is typically experts’ number-one recommendation for reducing your monthly bill. That’s because if you make payments in one of these plans long enough, you can qualify for forgiveness, Mahoney says.

So even if you expect your financial hardship to be temporary, it's still better to get credit for paying via income-driven repayment—think of it as time served. Public service works can get forgiveness in 10 years, while other borrowers pay for at least 20.

Under these plans, you'll owe as little as 10% of your take home pay, and if your income is low enough, you'll owe $0. To get an idea how much your payments would be reduced, use the loan simulator here.

To sign up, go to studentaid.gov. Find the application under 'manage my loans' and then 'apply for an income-driven repayment plan'. You’ll have to input your family size and income.

Then, the application will direct you to the IRS to retrieve details from your most recent tax return. Don't worry—you’ll be able to note that your income has dropped significantly since you filed. You typically need some documentation, either a paystub or letter from an employer, as evidence of that income change. Since you likely don’t have that, Mahoney recommends a signed statement in which you explain your circumstances. Include the contact information of your most recent employer.

Betsy Mayotte, president of The Institute of Student Loan Advisors, which gives borrowers free advice, says she normally advises borrowers to wait for their most recent paystub showing reduced income, but that she suspects the servicers might be told by the Education Department to be more lenient in the current environment.

If you’re one of the roughly 30% of direct loan borrowers who are already enrolled in an income-driven repayment plan, keep in mind that you can go through this process to re-calculate your payments, too, Mahoney says. You don’t have to wait until your annual income recertification period to show your income has dropped.

The application process shouldn’t take more than 30 minutes to complete, but it can take servicers several days (in the best-case scenario) to approve your application.

Finally, you can also explore an extended repayment plan to see how much you'd owe under those. They reduce your monthly payment by adding more years to your loan term. Again, income-driven repayment plans are typically superior, especially if your extended repayment plan has you paying for 20 or 25 years.

If You Have Private Student Loans

Private loans don't have the same number of options as federal loans to modify your monthly payments, though many lenders do offer a temporary period of forbearance if you're having financial troubles. (These periods are generally much shorter and more limited than the federal government's.)

With any type of debt, you should contact the creditor as soon as you know you’re going to have trouble, says Stefanie Jackman, an attorney with Ballard Spahr who works with financial services companies.

“If you anticipate or you’re already experiencing financial distress, now is the time to reach out,” she says.