As the COVID-19 pandemic continues to disrupt our lives and, in many cases, financial situations, a lot of people are looking for ways to tighten their budgets. If you’re trying to reduce expenses, you may have wondered “Should I refinance my student loans?”
Note: this post was updated on April 20th. As ongoing changes to student loan policies occur amidst the COVID-19 outbreak, check StudentAid.gov to make sure you have the most recent information.
The answer is—it depends on what kind of loans you have. The government recently passed the CARES act: a bill that waives both interest and payments on some student loans for six months. But—and this is a big but—it only applies to certain federally-held student loans (we’ll get to the nitty-gritty on that below).
So if you have certain kinds of federal loans, refinancing will disqualify your loans from relief (because you can only refinance with a private lender). Before you consider refinancing, read on to see how the new relief act might affect you.
Keep in mind that there are a lot of relevant details that affect each individual in different ways—this article can give you general guidance, but you’ll want to look into your own specific circumstances. Here’s a quick list of questions we cover below:
- What’s happening with student loans right now?
- What’s the difference between federal and private loans?
- How do I know what kind of loans I have?
- I know I have federal loans—how do I get the CARES benefits?
- Where can I get more info and help?
- Should I refinance any of my loans now?
- What happens next?
- Bottom line, what does all of this mean for me?
What’s happening with student loans right now?
The CARES bill enacted on March 27—along with new policies from the Department of Education (DOE)—includes relief for student loan borrowers. Here’s a quick summary of the relief:
- Interest waived: For federal loans, there is no interest through September 30, 2020
- Payments paused: No payments are required for federal loans through September 30, 2020
- Effective date: The interest waiver and payment suspension apply as of March 13, 2020 (and if you made a payment after that date, you can get a refund)
- Servicing: Loan servicing companies (the company where you actually send your loan payments) have been given until April 10, 2020 to enact the interest waiver and payment suspension—and they must make it retroactive to March 13, 2020
- Federal loans only: Relief applies only to federally-held student loans—private loans are not included at all
What’s the difference between federal and private loans?
Federal loans refer to student loans provided directly by the government, while private loans are those funded by a bank, credit union, or other financial institution.
But, like everything related to student loans, it’s a little more complicated than that when you get into the details. There are multiple types of federal loans, and some of them are not actually “held” by the government (meaning the debt is actually owned by a financial or academic institution, even if you applied for the loan through the government).
Here’s a quick breakdown of the common types of federal loans:
- Direct Loans: These are loans made directly by the Department of Education (DOE) and are federally held (so they do qualify for relief in the CARES act relief). These loans became very common as of 2010, so if you got student loans from the government after that, there’s a good chance this is the type you have
- Federal Family Education Loans (FFEL): Students apply for these loans through the government, but the actual funds come from a private financial institution. However, the federal government has bought some of these loans back from private lenders—so if you have a FFEL loan, it may or may not be federally held
- Perkins Loans: These loans were available through 2017 for students with high financial need. Like the FFEL loans, some of these are federally held and some are considered private
To add yet another layer of complexity: many people have a combination of different types of federal loans, or a mix of both federal and private loans—even if you just have a single loan servicer to whom you make your payments.
How do I know what kind of loans I have?
Your loan servicer (the company that takes your monthly payments, which may or may not be your actual lender) is the best source for finding out exactly how many loans you have and what kind they are. If you have an account portal online, you should be able to get this info there. If not, give them a call to find out what you need.
One thing to keep in mind: loan servicing companies are inundated with customer calls and new processes right now, so you might be facing a long hold time. You might want to queue up a favorite show to stream while you’re sitting on hold.
If you still need help determining if you have federal loans, you can create an account to see all the federal loans you have at StudentAid.gov (though this won’t show you any private loans).
I know I have federal loans—how do I get the CARES benefits?
Some of the relief stipulated in the CARE act is automatic, while you’ll need to actively request other forms of relief. Here’s a breakdown of the most common benefits and questions.
- Interest waiver: Interest on all federal student loans is automatically waived from March 13 to September 30, 2020
- Payment suspension: No payments on all federal student loans are required between March 13 to September 30, 2020. If you have auto-payments set up, they should automatically stop (be sure to check your account to ensure your servicer isn’t still processing automatic payments)
- Payment refunds: If you made a payment after March 13, you can get a refund—but you need to contact your servicer to request it
- Additional relief: All the existing options for help with your debt—including income-driven repayment plans, deferments, and forbearances—are still options, but you’ll have to apply for those programs through your servicer
Where can I get more info and help?
Things have changed rapidly in the last few weeks—and there may be more changes to come. Stay on top of what’s happening and get the help you need with these resources:
- StudentAid.gov: This is the DOE’s dedicated website for student aid—that’s where you can find the most up-to-date, comprehensive, and reliable info about COVID-19 relief and everything related to federal student loans
- COVID-19 Student Loan Aid Tool: The nonprofit Student Debt Crisis and tech startup Savi have teamed up to create a free tool to help borrowers navigate the new legislation and apply for additional relief
- Your servicer: The company (or companies—some people have more than one) where you send your monthly payments can give you detailed information about your specific situation. As servicers are getting up to speed with the new law, remember that their websites might not have the latest info and that hold times might be long when you call
- If you need broader debt help: Many states, companies, and other entities have enacted policies to help people with debt—including private student loans excused from the CARES act and other kinds of debt. Resolve (a Public Benefit Corporation dedicated to helping people get out of debt) has compiled a regularly-updated resource of options for relief
Should I refinance any of my loans now?
If you have federal loans, refinancing now will mean you lose out on the interest and payment relief of the CARES act—as well as federal options for loan forgiveness, forbearance, income-driven repayment plans, and other benefits.
However, if you have private loans, you’re one of the nine million people left out of relief in the CARES act—and in that case, refinancing while interest rates are low could be beneficial.
Even if refinancing isn’t the best option for you, your lender may have programs for reducing or pausing your payments on private loans right now. Get in touch with them to find out what’s available if you need help.
What happens next?
First, make sure your servicer is waiving interest and payments on your federal loans. If you’re still being charged, call them to get it fixed. Many servicers are struggling to make so many changes so quickly—it pays to be vigilant. And if you made payments (or had auto-payments processed) after March 13, be sure to request refunds from your servicer if you want them.
Next, if you want to get out of debt faster, consider continuing to make your monthly payments if you can afford it. Because interest isn’t accruing on your loans right now, it’s a great time to work on paying down the balance of your debt.
Third, if your federal loans are currently in deferment, forbearance, or default—or if you’re in any other programs like loan forgiveness or special repayment plans—the best resource for how CARES affects your situation is StudentAid.gov. You might also want to call your servicer.
Finally, keep yourself up to date on any ongoing changes. As the COVID-19 pandemic continues to reverberate through the world, it’s entirely possible that the government will enact additional legislation or other changes. As of early April, some members of congress are pushing for another round of relief to help those with privately held loans (as Forbes explains), so keep an eye on the news. At this point, the DOE is required to notify you by mail in August about when the interest waiver and payment suspension will end—so check your mailbox along with keeping abreast of updates made at StudentAid.gov.
Millions of people are grappling with student debt, and it’s a complicated issue that’s changing rapidly in the current environment. By being proactive now—checking on your types of loans and seeking any additional relief you might need—you can get a better handle on your budget and maybe even get ahead on your journey to debt freedom.
Bottom line, what does all of this mean for me?
Student loans are complex—and the student loan waiver will have very different implications for every person depending on individual circumstances. We hope the information above helps you feel more informed, but look at it as general education—at the end of the day, you’ll need to do research about your unique situation.
It’s crucial that you start by finding out details of your loans: what kind of loans you have, any special programs or repayment options you’re using or want to use in the future, who your lenders and services are, etc. That will empower you to make the best choice for your needs right now.
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Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: This article is based on information available as of April 21, 2020 and is intended to provide general guidance only regarding an evolving situation (specific situations will vary; consult a professional for specific legal, tax, financial, and other advice). Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. These linked sources do not necessarily reflect the views or opinions of Simple or its partner bank, BBVA USA. Any third-party sources have been provided to offer additional information. For the latest information regarding the student loan relief provided by the CARES act, please visit the Department of Education’s website.