The coronavirus pandemic is having a huge impact on daily life. A lot of people had significant, sudden changes to their incomes through no fault of their own. But one thing remains the same: Your student loan payment is still due.
With the economy and markets fluctuating (mostly going down), keeping an eye on your finances is important. That’s why I sat down with our very own Meagan Landress, CSLP®, to walk you through how to get relief on your student loans during an economic disaster.
Lowering your student loan payment
If you’ve had a drop in income and want to lower your student loan payment, the entire process can be done online. “You can avoid making a phone call and sitting on hold for a couple of hours,” said Landress.
The government recently updated the federal student loan website, which couldn’t have come at a better time. Formerly separate federal student loan sites have been merged into a single resource, StudentAid.gov.
Once you log into the system, you’ll be able to manage your loans and ask for a lower monthly payment.
How to recalculate your student loan payment
For a step-by-step guide on how to calculate your student loan payment, Landress outlined what to do and included screenshots to walk you through the entire process in this article.
Here’s a quick recap of those instructions:
Visit StudentAid.gov and go to “Manage Loans” from the menu. From there, you select “Apply for an income-driven repayment plan.”
At this point, you’ll get four different options:
- I want to enter a plan like an income-driven plan.
- I’m submitting documentation for my annual recertification.
- I’m submitting documentation early to have my income-driven repayment recalculated immediately.
- I want to change to a different income-driven repayment plan.
“If you have lost income or you’ve lost your job, go to the option that says, ‘Recalculate my monthly payment immediately,’” said Landress.
Documentation you’ll need to adjust your federal student loan payment
Of course, the government doesn’t just take your word that you had a change in income. You must provide proof.
Calculating your payment amount using your most recent tax return is the most common way to provide proof of your income. As you go through the online process, “it will link through the tax returns, which is the easiest and quickest thing,” according to Landress.
If your income recently changed, providing alternative documentation might be necessary. Alternative forms of proof documenting your change in income can include:
- A recent pay stub
- An offer letter from your employer
- A signed statement
Using a pay stub or job offer letter is easier than a signed statement. But “if you’ve lost your income altogether, you’re not required to submit anything,” said Landress.
You’ll upload the documentation to the StudentAid.gov site and your loan servicer’s site. Uploading the documentation is preferred over sending the information through the regular mail system.
Why you shouldn’t opt for deferment or forbearance
You might think losing your income is the perfect scenario to qualify for deferment or forbearance. Recalculating your student loan payment through an IDR plan is the better option.
That’s especially true if you’re working toward student loan forgiveness because “deferment and forbearance pauses your time frame,” said Landress.
“If you are working toward PSLF, or if you’re working toward that longer-term income-driven maximum repayment forgiveness, those periods where you’re not required to make payments under deferment or forbearance are not going toward that timeline.”
There’s also the issue of your payment not covering the accrued interest per month, but interest subsidies are available to help manage your balance.
“We’re trying to figure out what’s going to happen with President Trump waiving student loan interest, but those are just some reasons that getting your payment reduced or getting a required $0 payment would be preferred over pausing your loans,” said Landress.
What to do if you’re in default right now
The group of people I’m really worried about right now are the ones already in student loan default. Servicers are working on implementing the student loan interest waiver proposed by President Trump, but it won’t help if you’re already in default.
Several borrowers do loan rehabilitation if they get behind on their payments. It’s a one-time thing, which means you could be in hot water if you miss a required payment.
Rather than taking a chance of not being able to make a payment, consider consolidating your loans and signing up for Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE).
“Consolidation is the quickest way to get out of default status. It still takes 30 to 60 days for them to process the consolidation, but it’s much faster than the nine months of loan rehab that you’d have to make payments,” said Landress.
Plus, those rehab payments don’t count toward forgiveness.
Your best option right now is to consolidate and sign up for an income-driven repayment plan.
It’s like ripping off a band-aid. Just consolidate your loans and get it over with because “it’s not going to go away — federal loans in default will haunt you forever,” said Landress.
Want more help?
Recalculating your federal student loan payment is an excellent move in light of recent events. If you have private loans, you can still refinance those for a chance to lower your interest rate.
And if you’re not sure what moves would save you the most money, book a consultation with Meagan Landress, CSLP®, or one of our other student loan consultants.
It’s an uncertain time in our economy right now. If you don’t have the cash to pay for a consultation, leave a question on our voicemail. Your question could get featured on our podcast, and you’ll get all the insight and wisdom from a student loan planner without the cost.
In the meantime, Landress says, “Stay positive, stay healthy, and we’re going to get through this.”