Editor's Note:Update [3/26/2020] We will try our best to update this article with the latest information/news from the federal government during these changing climate 


With the Coronavirus crisis fully engaging our nation, every facet of our economic system is being affected.  President Trump declared Friday March 13 that he’s waived “interest on all student loans held by federal government agencies” until further notice.  In addition to today's announcement, he allows borrowers to suspend payment up to two months. This applies to most of the 43 million Americians who owe close to $1.5 Trillion in federal student debt.


There has been much debate about what exactly this means.  Here are some Keys Points that we know so far and what it means for your student loans:

  • (1) This will only impact Federal Direct Student Loans. Not all types of Federal Loans will qualify.

  • (2) The Interest Waiver is effective immediately and automatically (Except for Aspire Lenders)

  • (3) Lack of staffing affected by Coronavirus will likely reduce service

  • (4) Monthly payment is still DUE and will not decrease with the 0% Interest waiver

  • (5) You can suspend payments for up to 6 months but it will not be Automatic

  • (6) You might be automatically placed in a Forbearance Period which affects any student loan forgiveness payment if a national disease is announced

  • (7) Students currently enrolled in school (undergraduate and graduate) would also not accrue interest.

(1) This will only impact Federal Direct Student Loans.  Not all types of Federal Loans will qualify.


Here is a quick list of specific loans that fall under the Federal umbrella:


      1. Direct Stafford Subsidized 
      2. Direct Stafford unsubsidized 
      3. Direct Grad PLUS  
      4. Direct Parent PLUS

This means that most FFEL Loans and Perkins would not qualify for this interest since most of these types of loans are held by private banks and universities.  This should not be a big issue since most new borrowers after 2010 don’t have the FFEL loan. Additionally, those that have the Perkins Loan often have a small loan.

(2) The Interest Waiver is effective immediately and automatically (Except for Aspire Lenders) 


As many of our members have called their lenders and confirmed that is 0% interest is in effect, except for Aspiring Servicing Center. We don’t know why Aspire wasn’t a part of the implementation, but likely that specific serving center have more private loans within its portfolio.  


We were very surprised by how fast this policy was implemented! When the Revised  Pay As You Earn (REPAYE) came out in 2015, it took lenders several months to figure out how the new repayment plans work.   This caused many borrowers a lot of confusion and frustration.

aspire

(3) Lack of staffing affected by Coronavirus will likely reduce service


There will be a huge strain that this new policy will have on these loan servicing companies. Many of them have large numbers of employees in large corporate office parks.  This will create an additional workload on servicers who (let’s be honest) weren’t that good at their jobs in the first place.


(4) Monthly payment is still DUE  and won’t decrease with the 0% Interest waiver


The benefit is that more of your payment will now count toward reducing  your loan’s principal, which will help you pay off the loan much faster, since interest is no longer factored into your payment

From Fedloan: 

  • Effective March 13, 2020, the interest rate on all federally held student loans serviced by FedLoan Servicing will temporarily be reduced to 0% for at least 60 days.

  • This 0% interest rate will remain in effect until the Department of Education issues an end date.

  • This 0% interest rate change will be applied to all federal loans in any status (in school, in grace, in repayment, in deferment/forbearance, etc.).

  • NOTE: Monthly payment amounts will not decrease because of the 0% interest rate. Any payment made during this time will first satisfy any pre-existing unpaid interest, and then the remaining amount will be applied to principal.

After speaking with some servicers, we can confirm that while it is automatically applied after Trump’s announcement, it might not show up on monthly payments and will likely back applied later on. This will likely create a backlog on interest waiver on each loan. So be patient.


(5) You can suspend payments for up to 6 months but it won’t be Automatic


A borrower still must contact their loan servicer and request that their loans be put in forbearance. This is basically the same option that exists for borrower struggling to afford their monthly student loans but the process usually requires a borrower to submit documentation showing they meet the eligibility requirements. Now, it could be a little easier. From the The Department of Education, it had said it has directed loan servicers to grant forbearance to anyone with a federal loan who requests one.


"Borrowers should contact their lenders, but we've given them very strong instructions," Trump said.


Usually, loans in forbearance accrue interest. But that won't happen at least over the next 6 months under the new temporary policy. That means a borrowers' balance won't continue to grow.


Update: 3/26/2020 The latest Senate Stimulus bill extend those payments without interest for the next six months. It also suspends the collection on defaulted debts -- including wage and tax refund garnishment.


Private Refinanced Student Loans with Forbearance Options:


SoFi:

  • Offer loan deferment for borrowers who in school (graduate degree only), disability rehabilitation training, unemployment, economic hardship such as (but not limited to medical expenses, medical leave from work, relocation for employment purposes, damage expenses to your home or automobile -not regular wear and tear), and legal fees and/or Military (active duty/National Guard).

  • Offer Forbearance for unemployment, economic hardship, military mobilization and/or Natural Disaster.

Earnest

  • Offer deferment for borrowers pursuing graduate education, serving active military and/or Peace Corps duty. But interest will accrues during the deferment period.

  • Offer Forbearance for those experiencing an inability to make their monthly payment due to a documented and verifiable hardship.

Brazos


  • Offer loan deferment for borrowers who have economic hardship (3 months at time, up to 12 months

  • Offer Forbearance, along with active Military duty (up to 36 months) and Natural Disaster forbearance (up to 3 months).

Commonbond

  • Offer forbearance for borrowers who have economic hardship or Natural Disaster forbearance (COVID-19)

First Republic

  • Currently does NOT offer forbearance during economic hardship.

Splash, Credible, Lendkey


  • Dependent on individual lenders since they work with multiple banks.

LaurelRoad

  • Who is not our partner yet, do offer forbearance for up to 12 months

Remember that interest continues to accrue during periods of forbearance. At the end of the forbearance period, the accrued interest is added to the balance of your student loan and the loan is re-amortized to ensure the loan pays off in the applicable repayment term. This could change your monthly payments.

As always, please consult directly with each specific lender. For the latest Refi Rates, check out Student Refi Resources 

(6) You might be automatically placed in a Forbearance Period which MIGHT affects any student loan forgiveness payment if a national disease is announced


Usually when a location  is declared “a national disease area”, some servicers will automatically place borrowers into an automatic forbearance, even if you didn’t ask for it. Forbearance isn’t too bad for people who really need it! You get 90 days  of paused payments and the interest does not capitalize. In this case, it doesn’t matter since interest is zero. This is a good thing for borrowers who really can’t afford to pay their student loans.


Why is this important?


Let’s say the whole US declares a national disaster and everyone is automatically placed in forbearance, but you are enrolled in a 10 year Public Service Loan  Forgiveness (PSLF) and your area wasn't affected or you are simply financially prepared to make the necessary monthly payments. If your 90 days worth of payments is paused - it won’t count toward 10 years for PSLF or 20-25 IDR forgiveness


So make sure you check with your lender to defer automatic forbearance if possible


Update: 3/26/2020 The latest Senate Stimulus bill finally afford an additional benefit for those borrowers seeking loan forgiveness such as the Public Service Loan Forgiveness program.


For example. Those borrowers should still see their debt wiped away after 10 years, WILL NOT be penalized for not making payments over the next six months.

But again, this is ongoing proposal and with the backlog from loan servicers, it is especially important for borrowers to document and track each monthly payment to count toward the income-based 120 payments total.  


(7) Students currently enrolled in school (undergraduate and graduate) would also not accrue interest.


While this doesn’t apply to Optometrists, this definitely applies to optometry student who might see a lower rate in their future student loans


Mr. Mark Kantrowitz (from vice president of research at Savingforcollege.com) expects rates on federal loans for the coming school year to decline to about 1.9% from 4.53% for undergraduates; to about 3.5% from 6.08% on Stafford loans for graduate students; and to about 4.5% from 7.08% on Plus loans for some graduate students and parents of undergraduates.

How does the Trump  Student Loan 0% Interest Waiver affect Student Loan  Refinancing? 


When this news came out, we must have gotten close to 30+ messages from optometrists asking if they should defer refinancing their federal student loans because they were excited about “Free money! 0% interest” 


Here are my thoughts after talking to some of our Student Re-fi  partners and some common questions that we gotten:


How long will the 0% Interest waiver be implemented? 


  • The 0% interest waiver will likely be short term (3-6months max) or until the crisis is over.

  • The economy is bleeding money right now so once this is over, the government is going to want to collect on the money owed.  Remember, the government cannot continue “creating money” forever. Otherwise inflation occurs.

What if I was planning to refinance my federal loans this week? 


  • If you are offered a very low rate with a private lender (which is honestly the lowest we have seen in over 5 years ~2.9-3.9%) and already planning to refinance, we would stick with the game plan

  • If you are offered a higher rate, it may be wise to wait a few weeks

Should I wait  to see if Re-fi Rates will drop in a few weeks?


  • Lenders are typically pretty quick to reflect market changes like these in their pricing. That said, it is obviously very much up to the lender in terms of how much of a rate change to make (if any) and for how long to make it.

  • If you have a rate you like now,  there should not be a problem taking that to the finish line and by the time you’ve gotten your documents approved and are ready to sign the new loan agreement, you could re-check your rates. which has no impact on your credit score, just to see if they have changed.

  • Assuming you have already applied and taken the credit inquiry, we would refer to this post from myFICO regarding multiple inquiries for the same product (rate-shopping) and how it can be less impactful on your credit score than you might think: https://www.myfico.com/credit-education/credit-reports/credit-checks-and-inquiries

What about the Federal Reserve dropping its rate to 0%?  Can this help with Private Re-Fi?


  • Yes while traditionally if federal rate drop, then all other financial products like home mortgage or Re-fi Student will lower as well

  • BUT there are several factors that can determine whether or if the Fed rate drop will influence a lender’s loan rates. Things like the lender’s cost of capital, access to capital (for those who sell or securitize to the capital markets), and so on could mean rates go down or up with this recent cut.

  • That said, lenders are generally not in the business of detailing their underwriting and pricing so it may be difficult for consumers to predict this, but like we said above, changes like this are typically made pretty quickly (within a week, if not sooner) to reduce risk for the lender.

  • Update [3/23/2020] It appears that lenders are concerned about the market trends so we seen variable rates stay roughly the same but FIXED rates definitely is climbing up close to 1-1.5% higher. We would advise doctors who are considering ReFi to wait a few weeks until market stabilizes to get a lower rate. In the meantime, enjoy the interest-free with your federal loans

"The takeaway is that there is a lot of unknown at the moment now so we would advise NOT making any major financial decision until the dust settles a bit. For the mass majority of our readers who we hope...are  prepared financially for this crisis; this likely won’t have any major impact long term 

-Dat & Aaron" 

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About DatBuiOD

Dr. Bui is a lead optometrist at the Apple Wellness Center in the heart of Silicon Valley. He has a deep passion for ocular disease and healthcare technology. He started his career with $230K of student debt and has been focusing on strategies on attacking this massive debt such as budgeting and personal finance, along with investing. He is a big advocate for passive index funding with a small portfolio toward technology stocks. Lastly, he wants to help all new doctors and high-earning professionals navigate toward wealth and financial independence.

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