Special Coronavirus Bulletin #7: How To Suspend Payment and Interest Accumulation On ALL Your Federal Student Loans

You’ve probably heard that the new federal CARES Act has automatically suspended payments and the accumulation of interest on your “student loans held by federal government agencies” from March 13 through September 30.

This means that you need do nothing to have your federally-held postsecondary debt payments and interest put off until October — one way the federal government’s trying to eliminate financial burdens caused by economic upheavals during the coronavirus pandemic. But just what are student loans held by federal government agencies?

This term applies all Federal Direct Loan Program (FDLP) Loans. It also consists of other federal college debt owned by the U.S. government, including:

How can you find out if your Perkins and FDLP Loans were sold to the federal government? Contact the loan servicer administering those loans and ask.

And if such loans haven’t been sold to Washington, is there any way for them to get the automatic payment and interest accumulation suspensions available to FDLP Loans? Yes! You can borrow an FDLP Consolidation Loan to pay them off and, in effect, turn what you owe on them into an FDLP debt. It usually takes two – three weeks for FDLP consolidations to be completed. And when it’s completed, Perkins and FFELP interest will be capitalized (added to loan principal), so to minimize the amount of interest that’s capitalized, keep making Perkins and FFELP payments you owe until you’re notified that they’ve been consolidated.

The FDLP doesn’t consolidate private, state, and institutional student loans, but an FDLP Consolidation Loan will ensure that all your federal student debt payments are suspended without any interest accumulating through the end of September. If this’ll help you weather the current coronavirus crisis, start the ball rolling for a new FDLP Consolidation Loan today!

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com if you’re trying to figure out how to best manage your student loan debt, federal or otherwise. Let us use our 42 years of student loan expertise to work for you through our no-charge consultations!

Before College: Teaching Small Children About Money

Our children will leave for college in what seems like the blink of an eye, and among the things we need to teach them is how to work with money. There are many parts to this, of course – the nuts and bolts of day to day spending like remembering sales tax (for little ones) and keeping tabs on their bank balance (for older ones) — but how do broader concepts like debt and savings fit into it?

I believe that experience is the best teacher, and so from the time that they are quite young, it can be good to give kids the opportunity to experience both debt and saving. The key thing is to let them explore, because that is how they can learn.

How does an 8 year old learn about debt? The most likely scenario is that she will borrow some money from a sibling or friend, and then have to figure out paying it back. Some children can be quite disciplined and get it taken care of, others will find it more painful, or simply forget and need to be reminded. Either way, the important part is to not rescue them from having the experience and learning from it. It can be very interesting to see how our own issues can get triggered when our children are working through a situation, so if you feel uncomfortable, or have an urge to jump in and rescue, take a good look at that before you act!

Saving is another challenge. Teach them to save a portion of their allowance or earnings for the long term. (You can define how “long” that is – in my family we made it after they finished college.) This can be difficult. Most children will want to spend their money now; in fact, one could argue that most adults feel the same way! So be patient, but hold to it. When our sons had high school jobs we required them to save half of their earnings, and with the younger one it was easily a three-month period of daily pushback before he settled in!

The relationship between debt and savings is important. By practicing, children can learn how we build up savings, so that when they are away at college they will be able to run their finances from a cash-based rather than a debt-based approach – in other words, save up money before they buy something, rather than buy it first and then have to figure out how to pay for it. This takes patience and maturity to set up, but it will decrease both their stress and their financial vulnerability once they are at school and managing their own finances.

About Linda Matthew . . .

Today’s guest author is Linda Matthew, Accredited Financial Counselor® and owner of MoneyMindful Personal Financial Coaching, with which College Affordability Solutions has partnered since 2016. Linda has clients throughout the U.S. and Canada. She is also the parent of one college graduate and one current college student.

Linda’s new book, Teach Your Children About Money, describes age-appropriate methods for helping youngsters learn about themselves and different ways to manage their money. It also has a special section just for college.

Go to the MoneyMindful website for more about Linda, to arrange a free consultation and to order your copy of Teach Your Children About Money.

Special Coronavirus Bulletin #6: The CARES Act May Provide Temporary Breaks on Your Federal Student Aid

Yesterday the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. The Act makes temporary changes to federal student aid programs that take the place of any similar measures announced by the President or ED. Here are these changes affecting federal aid recipients:

Federal Direct Loan Program (FDLP)

  • Loan Payments and Interest Accumulation Suspended: The Act suspends all FDLP loan payments due and interest accumulation that would take place through September 30, 2020. Nevertheless, these months must count as if borrowers made payments when adding up the months required to qualify for all FDLP loan forgiveness and default rehabilitation programs.
  • Garnishments Suspended: To reduce their debts, ED normally garnishes (seizes) money defaulted borrowers would otherwise receive from federal benefit programs, federal tax refunds, and wages. The Act suspends all these garnishments through September 30. ED has reportedly confirmed that garnished tax refunds in process on March 13 will soon be sent to borrowers.
  • Notices to Borrowers: The Act gives ED 15 days to notify borrowers of these suspensions, and that they may still make payments if they wish. Beginning August 1, ED must provide borrowers at least 6 notices describing when their normal payments will resume, the FDLP’s income-driven repayment plans, and borrowers’ rights for switching to those plans.

Federally Funded Emergency Grants

  • Washington allocates money for Federal Supplemental Educational Opportunity Grants (FSEOGs) to postsecondary schools every year to help exceptionally-needy undergraduates. Through September 2021, the Act allows schools to redirect some or all of these allocations to emergency grants for undergraduate and graduate students suffering unexpected expenses or unmet financial need due to qualifying emergencies*. FSEOG allocations are fairly small and, at this point in the aid process, most FSEOG money has already been committed, so this may not add huge amounts to emergency grant programs.

Federal Pell Grants

  • Pell Grant eligibility is limited to 150% of the normal length of recipients’ undergraduate programs — e.g. students in 8-semester programs may get Pell for up to 12 semesters. The Act authorizes ED to exclude academic terms for which Pell Grants are received from this “150% rule” if students don’t finish them due to qualifying emergencies*.

Federal Work-Study (FWS)

  • If FWS jobs for an academic year get disrupted due to qualifying emergencies*, the Act allows postsecondary schools to pay for all or part of what students awarded FWS would have earned during that year, provided the students already began work in their FWS jobs. The Act doesn’t require schools to do this — and doing it may generate some extra costs for schools — so check with your financial aid office if your FWS job’s been disrupted.

Withdrawing Due to Coronavirus

  • Accelerated Federal Aid Repayment: Students withdrawing from school before the 60% point of the terms for which they got federal aid are immediately liable for repaying at least part of that aid. The Act exempts students from such liabilities if they withdraw due to qualifying emergencies*.
  • Satisfactory Academic Progress (SAP): Students must maintain SAP, in part by completing a certain percentage of the credits they attempt, to continue receiving federal aid. The Act allows schools to exempt credits not completed due to qualifying emergencies* when determining SAP.

* Qualifying Emergencies are coronavirus-related emergencies declared by the President or Secretary of Health and Human Services. This includes the current Presidentially-declared coronavirus national emergency.

Follow this website to receive future Special Coronavirus Bulletins as additional information becomes available to College Affordability Solutions.

Special Coronavirus Bulletin # 5: Appeal for More Financial Aid If Necessary

A parent who is or soon will be helping a child pay college-related costs, but the coronavirus has led to that parent losing substantial work earnings or suffering big investment losses in the market crash. An undergraduate who’s experienced similar losses. If either of these describe you, you should submit an appeal for more financial aid.

Every student’s eligibility for the federal grants, the lowest-cost federal student loans, and Federal Work-Study jobs — plus many state and institutional grants, scholarships, loans, and work-study positions — is determined by financial need.

What’s financial need? It’s your postsecondary school’s cost of attendance minus your Expected Family Contribution (EFC). EFC is based on the income and asset data reported on your Free Application for Federal Student Aid (FAFSA). For academic terms beginning before July 1, this was the 2019-20 FAFSA. It was the 2020-21 FAFSA for terms beginning July 1 or after.

If coronavirus-related earnings and/or investment losses have significantly impaired your ability to pay college-related costs, you may submit an appeal asking the financial aid office to recalculate your EFC and, if drops, additional aid need-based aid could become available.

Aid offices must have various documents to prove that financial circumstances have changed since you filed your FAFSA, so look on your aid office’s website or call it to get instructions on how to submit an appeal.

Warning! It typically takes aid offices a few weeks to take up and review appeals, so you should submit yours as soon as possible, especially if additional aid is needed to stay enrolled during the current term.

Unfortunately, not every successful appeal results in lots more grant or scholarship money. Many aid offices have already committed all these funds to other students at this point. But don’t let that stop you! Appealing may at least lead to emergency aid or a low-cost loan.

Get the financial aid needed to keep getting a postsecondary education. Don’t let coronavirus disrupt this basic 21st century necessity!

Struggling to put together an appeal like this? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a free consultation.

Special Coronavirus Bulletin #3: Payment Suspensions and Interest Waivers on Your Federal Student Loans

If you have federal student loans, you should know that federal policy makers are moving fast to extend debt relief to you during the current coronavirus national emergency.

Federal Student Loan Payments Suspended:

  • Today, the U.S. Education Department (ED) announced that you’re allowed to obtain an “administrative forbearance” suspending your FDLP debt payments. This forbearance took effect last Friday, March 13. It’ll last at least 60 days. To get it, you must request it from your FDLP loan servicer, either by phone or online.
  • Are you pursuing Public Service Loan Forgiveness (PSLF)? Think carefully before requesting this administrative forbearance. Any month in which you make no payment doesn’t count toward the 120 “qualifying months” you need for PSLF.
  • ED’s announcement also disclosed that you’ll get a forbearance suspending any of your payments that were more than 31 days late as of March 13, or that become more than 31 days late after March 13. You need not contact anyone to get this forbearance. Your loan servicer will automatically apply it to your loans.

Interest Waiver on Certain Federal Student Loans:

  • The President recently announced that interest on all student loans held by the government is waived until further notice. Today, ED issued guidance on it’s Federal Student Aid (FSA) office’s coronavirus website confirming this waiver’s effective date as March 13. It’ll be given automatically so you needn’t apply for it.

Student Loans Held By The Government:

  • These include all FDLP Loans, but usually not Federal Family Education Loan Program (FFELP) Loans, normally held by commercial lenders, or Federal Perkins Loans, normally held by postsecondary schools. So this interest waiver is off the table for them.
  • However, under certain circumstances, the holding of such loans may have been transferred to ED, in which case they’ll get this interest waiver.
  • Ask your loan servicer if you’re unsure about who holds your federal student loans. If your FFELP or Perkins Loans are held by lenders and schools, ask your loan servicer about consolidating them into the FDLP to get their interest waived.
  • The government never holds private student loans, so their interest won’t be waived unless their holders do interest waivers.

Interest Waiver Impact:

  • Normally, during a forbearance, you’re not required to make payments on loans held by the government, but interest keeps accumulating on them. At forbearance-end, unpaid interest gets added to your loan principal, and thereafter interest accumulates on your enlarged loan principal.
  • However, because of the interest waiver, there’ll be no post-March 12 interest to capitalize if you get a forbearance. Also, if you choose to make a payment while in a forbearance, 100% of it’ll get used to shrink your loan principal.

More guidance is coming. We’ll issue additional “special coronavirus bulletins” as it does. So keep checking this website, or FSA’s coronavirus website, for additional news. Meanwhile, stay healthy!

Special Coronavirus Bulletin # 4: Call Your U.S. Senators Right Away About Federal Student Debt Relief

Today U.S. Senators are negotiating the contents of the next coronavirus-related economic stimulus bill. Those negotiations are focused on numerous issues — including relief for the millions of Americans with federal student loan debts.

As reported in Special Coronavirus Bulletin #3, the President and U.S. Education Department (ED) have already announced two student loan relief measures:

  • Allow all Federal Direct Loan Program (FDLP) borrowers who ask to get their payments suspended for at least 60 days beginning March 13; and
  • Automatically waive interest accumulation on student loans held by the government (mostly FDLP Loans).

However, competing plans in the U.S. Senate would go beyond these actions. If you like one or the other of these plans, call your Senators’ offices immediately and let them know. Look here for their phone numbers.

Senate Republicans

They want to:

  • Require payment suspensions and interest waivers for 3 months instead of 60 days; and
  • Allow the Education Secretary to extend these suspensions and waivers for another 3 months if she considers it necessary.

Senate Democrats

They’d go far beyond anything described above. For the duration of the coronavirus national emergency declared on March 13, they’d:

  • Require ED to make all monthly FDLP and Federal Family Education Loan Program (FFELP) payments borrowers owe — payments that’d be tax-free and count just like borrower-made payments for forgiveness and default rehabilitation purposes;
  • Require ED to ensure that it’s paid no less than $10,000 for each borrower; and
  • Forbid FDLP and FFELP interest capitalization and the garnishment of social security benefits, tax refunds, and wages.

Make your voice heard to your Senators so they can take it into account as they decide which of these plans to support!

Special Coronavirus Bulletin #2: The Coronavirus Interest Waiver on Your Federal Student Loans

Our Special Coronavirus Bulletin #1: Coronavirus and Your Financial Aid, covered the President’s March 13 announcement that he had “waived interest on all student loans held by federal government agencies, and that will be until further notice.” It also noted that there are many outstanding questions about this waiver. Now, some answers have begun to emerge.

So far these answers haven’t been announced by the U.S. Education Department (ED) or its Federal Student Aid (FSA) office, but by The New York Times after questioning ED officials who say they’re still “finalizing details.” Here’s what The Times learned:

  • Affected Loans: Loans made under the Federal Direct Loan Program (FDLP) are held by ED, so they should end up with this interest waiver. But loans still held by lenders that participated in the old Federal Family Education Loan Program, and Federal Perkins Loans still held by postsecondary schools, will not. The Times pressed ED about whether this waiver will apply to FDLP PLUS Loans for graduate students and parents, but ED wouldn’t confirm this.
  • Begin Date: ED advised The Times that this waiver will be retroactive to March 13, although it’ll probably take about a week for federal student loan servicers to “operationalize” it.
  • Borrower Responsibilities: ED advised that this waiver will be automatic. You need do nothing to get it.
  • Impact on Monthly Payments: FDLP servicers have no instructions from ED to reduce monthly payment amounts due to this interest waiver, so what you pay every 30 days will likely remain unchanged — i.e. no short-term benefit.
  • Impact on Overall Debt: Normally monthly FDLP payments are first used to pay down interest owed, then to reduce FDLP principal. So everything you pay on/after March 13 should go to principal. This’ll shrink your debt faster, which means the amount you’ll repay in the long-term will be reduced.
  • Impact on Payment Postponements: Normally, when monthly payment obligations are postponed with deferments, interest on FDLP Unsubsidized Loans continues to pile up and, at deferment-end, it gets added to debt principal. If payments are postponed through a forbearance, the same normally occurs on both Subsidized and Unsubsidized FDLP Loan interest. But in the long-term this interest waiver should lead to faster debt elimination and less debt to repay.
  • Waiver Reversal: Will waived interest be added to your FDLP debt later? ED could not, or would not, give The Times to answer on this question.
  • When Additional Guidance Will Come: ED would only tell The Times it would share more details on this waiver “as soon as they are available.”

Keep looking here, or at FSA’s coronavirus webpage (https://studentaid.gov/announcements-events/coronavirus) for more information.