When President Trump announced his executive action that extended the CARES Act protections, many student loan borrowers breathed a big sigh of relief. Thanks to his decision, the student loan freeze on payments would continue, interest would continue to be waived, and collection activities would stay halted on defaulted loans through December 31, 2020.
However, not everyone qualifies for these benefits. The CARES Act student loan benefits and its extension only applies to some student loans.
Private student loan borrowers aren’t eligible; only people who took out federal Direct Loans can take advantage of these perks.
If you have private student loans, interest continues to accrue on your student loans, and your monthly payments are due as usual. If you can’t afford your bills because of COVID-19 cuts or you simply want to pay off your student loans as quickly as possible, here’s how to lower your student loan payments or interest rates.
Managing your private student loans during a pandemic
While private student loans aren’t eligible for the CARES Act benefits, that doesn’t mean there isn’t help available. Depending on your lender, there may be multiple options you can use to get assistance with your debt.
How to pause student loan payments
While you’re not eligible for the CARES Act benefits with private student loans, your lender may have other programs that can give you some assistance.
If you’re in danger of falling behind on your current payments, contact your lender and request a deferment or forbearance. Many lenders offer forbearances in cases of financial hardship or medical emergencies, and some are offering special forbearances because of coronavirus.
For example, Earnest created a short-term forbearance option for clients who contact the lender after July 1, 2020. It brings your eligible loans current and postpones your payments for at least one full month. This option is separate from Earnest’s other hardship forbearance offering.
With Ascent, borrowers experiencing financial difficulties can qualify for up to three months of forbearance at a time, for up to a maximum of 24 months of forbearance over the life of their loans.
How to request an alternative payment plan
Not all lenders will allow you to postpone your payments completely. However, you may be eligible for an alternative payment plan, such as making interest-only payments for a short time. It can reduce your monthly payments and give you time to get back on your feet.
For example, College Ave, Iowa Student Loans, and PenFed Credit Union encourage borrowers to contact their customer service teams as soon as possible if you experience issues so it can help you avoid delinquency.
Taking advantage of student loan refinancing
Since you can’t utilize the benefits of the CARES Act and private loan forgiveness isn’t an option, another way to tackle your private student debt is to refinance your student loans.
With student loan refinancing, you take out a loan from a new private lender and use it to pay off your existing education debt. After that, you have just one loan instead of several. Your new loan has completely different terms than your old ones, including interest rate, repayment period, and minimum payment.
During the coronavirus pandemic, refinancing can be especially helpful in lowering your interest rate or reducing your monthly payment.
How to lower student loan interest through refinancing
If you’re still employed and can afford your monthly payments, refinancing to a shorter loan term is a smart way to get a lower interest rate and save money over the life of your loan. Typically, lenders reserve their lowest-advertised rates for creditworthy candidates who choose the shortest loan terms.
For example, let’s say Maria had $30,000 in student loans and a 10-year repayment term at 6% interest. If she refinanced her loans and opted for an eight-year term, she could qualify for a fixed-rate loan as low as 3.5%. With a shorter loan term and lower interest rate, she’d pay off her student loans two years sooner and save $5,528 in interest charges.
| Original Loan | Refinanced Loan | |
| Loan Balance | $30,000 | $30,000 |
| Loan Term | 10 Years | 8 Years |
| Interest Rate | 6% | 3.5% |
| Monthly Payment | $333 | $359 |
| Total Interest | $9,967 | $4,439 |
| Total Repaid | $39,967 | $34,439 |
How to lower student loan payments through refinancing
If you are struggling to make ends meet and need to lower your monthly payment, refinancing can also help you with that goal. When you refinance, you can opt for a longer loan term. With a longer term, you can reduce your monthly payment, giving you breathing room in your monthly budget.
For example, let’s say Maria decided to refinance her loans and extend her loan term instead. If she opted for a 15-year loan, she could qualify for a rate of 5.8%. Her monthly payment would drop from $333 per month to $250 per month — a savings of $83.
You’ll pay more in interest with a longer loan term. However, that downside can be worth it when you need more cash flow right now.
How to save the most money with student loan refinancing
To maximize your savings when you refinance, make sure you shop around and get quotes from multiple student loan refinancing lenders. Rates and terms can vary widely from lender to lender, and you may get a better offer from one lender over another. Purefy’s Compare Rates tool makes the process simple. You can submit basic information about yourself and get rate quotes from top refinancing lenders without impacting your credit score. Once you find the right loan for your needs, you can complete your refinancing application online in as little as 15 minutes.
