How to Manage Your Student Loans Amid Economic Chaos


According to a survey conducted by Atomik Research that was commissioned by Freedom Debt Relief, 30% of people say they are likely to miss a student loan payment in the next six months because of financial strain from the coronavirus.

If you have student loans, here are answers to common questions about how to manage them over the next few months.

Does the CARES Act Cover Private Student Loans?

Unfortunately, private student loan payments will not be waived under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Only federal student loans, ones received by submitting the FAFSA, are eligible.

The two options are to keep making payments or talk to your lender about “forbearance” programs. Forbearance allows borrowers to pause payments for a few months. Often, interest will continue to accrue and might even end up being added to your unpaid principal, which will increase the cost of the loan. However, this will help you avoid damage to your credit score. You will be avoiding late fees and damaged credit, but this is still not a wise long-term financial move. Only do this if there is no way for you to pay these loans.

Will the Change in the Federal Reserve Interest Rate Affect Your Loans?

If your loan has a variable interest rate, then you could see it decrease over the next couple months. Last month, the Federal Reserve made an emergency cut to the interest rate in hopes of slowing the recession. Private lenders usually follow suit within a couple months, so your interest rate might end up going down.

If you’re lucky enough to still be employed and have good credit, now would be a great time to refinance the loan, locking yourself in at a lowered interest rate.

Note that taking out a private loan in order to pay off a federal loan would not be wise, but replacing your original private loan with a private loan that touts a lower interest rate is a proactive, savvy choice.

What if you have a mix of federal and private student loans?

If you’re tight on cash, the best option is to pause your payments to the federal loan and use that saved money to continue paying the private loan. Federal student loans are much more flexible and forgiving regarding late payments, whereas late payments on a private loan will damage your credit.

What if you’re receiving a stimulus check?

If you have your basic needs covered, it would be a great idea to use the CARES Act stimulus check towards your private student loans. 

If your loans are in forbearance, you can still use that extra cash to pay down interest costs, which could result in significant savings later, especially if your lender capitalizes the interest.

If none of these are financially viable options for you, that’s alright too.

Your top priority should be to try to continue making your loan payments or to work with your lender to make a payment plan. However, day-to-day survival is more important than worrying about your student loans.

Paying for rent, food, utilities, and transportation is a more pressing concern; don’t cause yourself too much pain trying to keep up payments. Once the recession passes and you regain your financial footing, you can worry about catching up with payments and fixing your credit. The entire world will likely be in a recovery period for months following this pandemic.