Due to the financial implications of the coronavirus lockdown, students are now worried about handling their outstanding loan payments.
The Coronavirus pandemic has forced learning processes to move online and also raised concerns regarding the future of academia. For students, the unprecedented nature of the events has changed the status quo.
These changes appear in the form of remote classes, delayed or canceled exams, changing admission and enrollment conditions, and disrupted financial affairs. However, most students stay motivated with the unwavering desire to obtain a high-quality education.
Despite the lockdown, students are still returning to college to complete their studies. According to several surveys, over 60% of students are willing to join their desired university despite the Coronavirus outbreak.
Moreover, recent loan forgiveness programs from the government have been a shot in the arm for students. This decision to defer student loans is a response to the economic impacts of the Coronavirus lockdown on students and their families.
But before we delve into the Coronavirus and student loan forbearance programs and legislation available today, let’s find out how student loans work. You will also discover your eligibility for these stimulus packages and the available grace period.
How Do Student Loans Work?
A student loan is the money you borrow to finance your education. Although most student loans come from the government, a private entity can still finance your education. Over time, these loans accrue interests, which you must pay within the specified period.
But how do student loans work in the USA?
The cost of tuition in the United States is quite high by world standards. Since students cannot afford this expensive tuition at first, they need a loan or grant to put them through college.
However, loans are different from scholarships and grants. If you are on a scholarship, you get to study for free. Similarly, a grant offers you a specific amount geared towards acquiring a degree. Conversely, you must pay back a loan to the government or financial institution with interests.
Therefore, one needs to understand how different types of loans work before applying. Yes, by taking advantage of any online essay writing service to help themselves out of writing burdens and adding new skills to their cover letters, newcomers will have a better chance of being admitted. Nowadays, it is just important to be flexible in adapting to the current environment and firm in intentions.
As the name implies, federal loans come from the government. These loans are under the auspices of the Free Application for Federal Student Aid (FAFSA).
Here are the three federal loan categories.
- Subsidized loans
Students (undergraduates) who qualify for financial need are eligible for this student loan program. While you are in school, the government takes up the mantle to pay the interests. However, this subsidy expires once you graduate or drop out of college.
- Unsubsidized loans
Students can also receive loan packages from the government even though they don’t qualify for financial aid. In this loan category, the loanee bears the responsibility of paying off the accrued interests instead of the government.
- PLUS loans
PLUS loans are available to students and academic professionals. But you can only obtain this loan with a healthy credit history. Most times, this loan covers extra academic expenses.
Private loans come from banks, financial institutions, NGOs, and individuals. In contrast to federal loans, private loanees enjoy more flexibility in payment.
Depending on the person offering the loan, you might need to provide a credit history. Some lenders often request periodical proof of academic performance. Besides, they can set their interest rates or loan conditions.
What Happens If You Don’t Pay Student Loans?
Sometimes, the idea of abandoning student loans sounds tempting since it relieves you of a huge financial burden.
However, you can’t escape the government. If you don’t pay off your student loan debt, they will continue accruing interests until you land in serious trouble. Therefore, don’t jeopardize your freedom and chances of landing a loan in the future.
Here are ways to prove yourself as a responsible borrower and citizen.
Use the Loans for the Right Thing
Using loans for other non-academic activities is a common trend among college students. Young people apply for loans and use the money to tour Europe instead of paying their academic debts. This irresponsibility will come back to haunt you eventually when the payment is due.
Abide by the Terms of Your Loan
Some federal and private lenders specify the terms of the loan application. Using the money for other things might be a prosecutable criminal offense. Besides, the terms of the loan often come with a specified payment timeline. So, failure to pay is a breach of contract.
Don’t Defer Student Loans Payment
If you have the financial buoyancy to pay your loans, make the payment promptly. Deferment is a temporary solution to a long-term problem. You should only defer student loans if you cannot complete the payment within the specified duration.
Notify the Lender of Financial Difficulties
Always contact the lender about financial problems hindering your ability to pay your student loans. Private lenders can give you a forbearance or even forgive the loan entirely. In the same light, the government provides various loan forgiveness programs, like the CARES Act, from which you might benefit.
Consider Your Future Career
Before taking a loan from the lender, analyze the employment prospects within your prospective field. Keep the size of the loan proportional to your future salary. This technique will save you from a lifetime of paying off student debts.
Following these rules will save you from the negative implications of not paying your loans.
But for clarity, let’s check out what happens if you don’t pay your student loans.
- Default — Avoiding payments over an extended period of ‘delinquency’ (270 days) pushes you into default. Eventually, this default affects your chances of applying for credit and financial aid.
- Forbearance — when you are physically unable to pay the loan, it continues to amass interest despite being on hold.
- Legal problems — Lenders can sue you for breach of contract if you fail to pay off the debts on time.
- Tax problems — Unpaid loans are not tax-deductible.
Since the Coronavirus outbreak forced schools all over the country to shut down, some steps have been taken by the Department of Education to soften the blow on students.
One of these steps is the temporary suspension of the repayment of student loans. This loan debt forgiveness program is covered under the CARES Act that came into law under the previous administration.
This halt in repayment of loans was initially meant to last for 60 days, but as time wore on and the effects of the pandemic became more devastating, the suspension was extended.
The suspension specifies a 0% interest rate on repayment of student loans until the 31st of January 2021. These measures could not have come any sooner, as many students have found it difficult to keep up with the crushing weight of their financial responsibilities.
This financial hardship is a consequence of their inability to work as a result of the nationwide lockdown.
The next step was taken by the Educational Board on the 21st of January, 2021, and it aims to give students more time to find their feet financially amidst the crisis. This step gives students more time to sort out their finances without worrying about their student loans. The extension will last till September 2021 at least.
However, the CARES Act only applies to ED-owned student loans — loans from the Department of Education. Private loanees still need to request forbearance from their lenders. But students can apply for emergency forbearance if they don’t qualify for automatic debt relief.
Ultimately, borrowers don’t need to apply for the new student loan forgiveness program. The pauses take effect automatically for all eligible borrowers. And as things stand, this relief program will stay in place until the end of the lockdown.
Student Loan Debt Forgiveness Scams
Nefarious actors are using this loan forgiveness plan to defraud unsuspecting users. At the same time, loan-related identity theft has increased over the past year. So, you need to stay cautious with loan providers.
Here are the common tactics used by scammers.
- Scammers charge fees to ‘activate’ this relief package.
- They request your account details to assist you with your application.
- They promise to contact your loan service provider for a reduced fee.
- Fraudsters use fake application websites for phishing activities.
For federal loanees, you can find all the information you need on the Federal Student Aid website. Private loanees can contact their lenders directly for information on forgiveness packages.
The global situation caused by the Coronavirus has disrupted the usual order of things. These changes have affected various aspects of life, including academia.
However, the government has rolled out a relief package under the CARES Act to help students manage the current economic crisis. Private institutions have also provided special forbearance programs to address these student loan concerns.
Keep yourself informed about current updates regarding student loans. Don’t rely on third parties to handle your loan payment deferrals because most of them are scammers. Ultimately, take care of yourself, and let’s hope this pandemic ends as soon as possible!