To assist borrowers during the COVID pandemic, federally held student loan interest and monthly payments have been suspended through September 30, 2021. Scammers have been taking advantage of the relief provision by contacting borrowers claiming they will suspend your payments for a fee. The federal government will not ask for a fee to suspend payments. In fact, you do not have to pay anyone a fee for help with your student loans. This is the purpose of your student loan servicer.
Student loan borrowers are often targeted with debt relief scams and should be on alert. These unscrupulous companies prey on distressed borrowers who may be experiencing financial trouble and struggling to make payments. Vulnerable borrowers are often conned into paying for relief services that they can receive for free. In many instances, the companies do nothing for the borrower and create more problems in the end. Borrowers are left to deal with additional fees and other adverse effects of having the debt unpaid. They also risk identity theft and other financial struggles while trying to recover from the scams.
Some red flags to look for are:
- High-pressure tactics to pay up-front fees.
- Pushing you to sign a contract on the spot.
- Promises to immediately grant loan forgiveness or debt cancellation.
- Demands to sign a “third party authorization” or “power of attorney”.
- Requests for your Federal Student Aid PIN.
Victims who wish to report student loan and debt relief scams should file a complaint with Business Consumer Alliance and report the scammers to the Federal Trade Commission (FTC).
Handling student loan debt can be a daunting task. Whether you have a federally held loan or private student loan, there are resources to help. Make sure your loan servicer has up-to-date contact information and check your mail or email for any updates or information about your loans.
Federal Student Loans
Student loan borrowers do not have to take any action on their loans in order to take advantage of the loan suspension. From March 13, 2020, through September 30, 2021, the interest rate is set to 0 and payments are suspended for student loans owned by the federal government. For borrowers who are able to make payments or continue making payments on their student loans, any payments made after March 13, 2020, will be applied directly to the principal once all the interest that accrued prior to March 13, 2020, is paid. This will help pay off the loan sooner. Borrowers who made a payment toward their federally held student loans during the payment suspension, beginning March 13, 2020, can request a refund from their student loan servicer.
The Department of Education stopped collection of defaulted federal loans, including wage garnishments or tax refund and Social Security benefit offsets, through September 30, 2021. Borrowers can enter rehabilitation agreements during the COVID payment suspension. If the borrower entered a rehabilitation agreement on a defaulted federal student loan, any payments suspended during the COVID emergency period will not be considered a missed payment.
Borrowers working toward Public Service Loan Forgiveness (PSLF) should know that only Direct Loans are eligible for PSLF. All Direct Loans are owned by the federal government. For Direct Loans, even though payments are suspended, those suspended payments through September 30, 2021, will count as though you had made a payment toward loan forgiveness programs, as long as the other PSLF program requirements are met.
If you have other types of federal loans and are working in public service, you can consolidate most, if not all, of those loans into a Direct Consolidation Loan, which is eligible for PSLF if other program requirements are met. Contact your loan holder for available options.
Federal Loans Held by Commercial Lenders or Schools
Some loans under the Federal Family Education Loan (FFEL) Program are owned by commercial lenders, and some Perkins Loans are held by the institution or schools. FFEL lenders and schools may choose to offer interest and payment suspension benefits. You should contact your student loan servicer for more information.
Perkins Loan borrowers can request forbearance from their institution, not to exceed three months. Borrowers are not required to provide documentation to be considered for forbearance. This forbearance counts toward the cumulative three-year maximum allowed for Perkins Loan forbearance.
Federal student loan borrowers can consider income-driven repayment plans. Contact your loan servicer or enroll online at studentaid.gov . If you’re already enrolled in an income-driven repayment plan but have income changes, ask your servicer to recalculate your monthly payment.
If you can’t afford to make payments and only need a temporary pause on payments, look to see if deferment or forbearance is an option for you. Servicers can grant a 90-day forbearance to borrowers who are experiencing financial difficulties due to the pandemic. If you are still unable to make a payment after 90 days, you can request to renew this forbearance. Putting your loans into a deferment or forbearance will not result in a negative credit reporting.
Private Student Loan Borrowers
Many private student loan lenders are making provisions to address needs during this pandemic. Private lenders may offer forbearance options that will allow borrowers to postpone monthly payments. Some are also waiving late fees, reducing payments, and will not file negative reports to consumer reporting agencies during this pandemic. Forbearance or relief programs through private lenders vary so contact your student loan servicer to discuss your alternatives.
Some questions you can ask your private loan servicers are:
- Is there a special disaster forbearance or relief options to help borrowers affected by the COVID-19 pandemic?
- How do I request forbearance or relief?
- Are there fees to sign up for a forbearance or relief program?
- Will interest continue to accrue during the forbearance or relief period, or will interest be added to the principal balance at the end of the forbearance?
- How long will this forbearance or relief period last?
- How will missed payments be made up? Will making up for the missed payments lead to an increase in the monthly payment?
- If the borrower is unable to make payments after forbearance or relief ends, is there an opportunity to extend the relief?
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