A student loan is a type of loan that helps students pay for post-secondary education and the fees that come along with it, such as tuition, textbooks and supplies, and living expenses. Unlike student loans, grants and scholarships provide money for college that you don’t have to pay back. Grants are usually need-based, while scholarships are usually merit-based. You should apply for any grants or scholarships you are eligible for, because they provide free money you can use towards your education. Federal student loans are provided by the government and have flexibility in repayment options, fixed and low rates, and many are subsidized. If a loan is subsidized, it means you don’t have to pay yearly interest while in college. Private student loans are provided by financial institutions. You should consider private student loans only after exhausting all options for federal student loans since those will have better rates and terms. If you defer paying off your student loans, the interest will continue to accrue. This means that your total cost will be higher if you defer the loans payments.
Student loans, like any other kind of loan, must be paid back with interest. If you miss a payment on your student loans, you’re considered delinquent. Default occurs when you remain in delinquency on student loans for a set period of time, usually 270 days. When you default, the entire unpaid balance of your loan and any interest you owe becomes immediately due. Some potential consequences of defaulting on your student loan debt include the garnishment of your wages, the loss of eligibility for additional financial aid, a much lower credit score, and a lawsuit. To avoid default, you can receive a deferment. Deferment allows you to postpone your monthly payments on your student loans. If you have subsidized federal loans you will not accrue interest during deferment, but if your loan is unsubsidized, you will. If you don’t qualify for deferment, forbearance might be an option. Forbearance allows you to pause student loan payments for around 12 months. However, interest will accrue on your loans, whether they are subsidized or unsubsidized.
Before the Stimulus Bill passed, the federal government had already waived two months of payments and interest for many federal student loan borrowers. Now, this Bill states that there will be automatic payment suspensions for any student loan held by the federal government until Sept. 30. At the end of the suspension, keep an eye out for what your loan servicer does; servicer errors are common. If you’ve borrowed money from the federal government in the past 10 years, you are eligible. However, a number of loans are not eligible: Perkins loans, loans from state agencies, and loans from private lenders. The holders of those loans may have their own assistance programs. In the following weeks you should receive notice indicating what will happen to your federal loans. You can of course choose to keep paying down your principal if you want, but no interest will be accrued and no payments will be due. It is hard to contact many of the loan servicers right now, so if you want to check if you have any payments due, log into your online account. There, you will be able to see if you have any payments due or not.
Some people may be worried about qualifying for the public service loan forgiveness program, for which you need to complete 120 monthly payments. However, the Bill says that your payment count will still go up by one every month during the suspension even if you don’t make any payments at all. The same is true for any other forgiveness or loan-rehabilitation program. People who have their wage garnished to pay for their student loans are also in for some luck. Wage garnishment is suspended during the six-month period and so is the seizure of tax refunds, the reduction of any other federal benefit payments, and other involuntary collection efforts. It will be hard to reach loan servicers right now, so the easiest way to check to see if you owe money is to log into your online account and see if your servicer is requesting any payments.