The CARES Act student loans benefit has been a boon to millions of student loan borrowers in America since the piece of legislation was passed. But the federal student loan pause on payments and interest only applies to student loans owned by the federal government, excluding certain types of federal loans and all private student loans.
Some private lenders offered their own form of student loan coronavirus relief, but if you didn’t qualify or that pause period is over, you may be wondering what your options are for lowering your private student loan payments and saving money.
Why private student loans aren’t covered by the CARES Act student loans benefit
When Congress passed the CARES Act, the student loan provision only covered certain types of federal loans. Why is that? Because the federal government only has the power to provide such relief on debt that it owns.
Because some older federal student loans were issued by private lenders and all private student loans are owned by private lenders, the U.S. Department of Education can’t force them to comply with a student loan interest pause of their own.
Of course, some private lenders did initiate a student loan freeze option for many who have suffered financially due to the coronavirus pandemic and resulting economic downturn. But terms vary by lender and aren’t nearly as generous as the measures implemented by the government.
How to lower student loan interest or qualify for a student loan pause
If you have private student loans and you’re struggling to keep up with your payments, here are some options to consider.
Call your lender to see if it’s offering coronavirus relief
If you haven’t already taken advantage of any Covid-related relief from your lender, you may have that option now. Because each lender has designed its own approach to pandemic relief, it’s important to call your lender to see what your options are and how you could qualify.
In many cases, such relief includes a forbearance of some kind, during which you don’t have to make your monthly payments. However, interest will still accrue, so it may be worth making interest-only payments if you can afford it.
Check if you qualify for forbearance or deferment
Whether or not you’ve taken advantage of coronavirus relief from your lender, you may be able to get a student loan pause through its forbearance or deferment programs.
There are many reasons you may be able to defer student loans, including if you go back to school. But one of the more helpful reasons is because you’re struggling financially.
If you can’t keep up with your payments because of your financial situation, call your lender and ask about forbearance and deferment options. Again, they can vary depending on which lender you have, and it’s at the sole discretion of your lender to determine whether you qualify for this type of aid.
However, it’s important to take the opportunity to research your options to determine if it’s a good fit. Also, note that as with coronavirus relief options, your payments may be paused, but interest will continue to accrue.
As a result, your loans will likely end up costing you more in the long run. But if you need immediate help now, it may be worth the trade-off.
Refinancing your private student loans
Student loan refinancing can have many benefits, some of which can make a big difference for your finances:
- Lower interest rates: If your credit history and income are in good shape — or you’re applying with a creditworthy cosigner — you may be able to qualify for a lower interest rate than what you’re paying on your student loans right now. Not only does this save you money, but it also reduces your monthly payment, assuming your new repayment term is close to or matches your current one.
- Lower monthly payments: Whether or not you qualify for a lower interest rate, you could score a lower monthly payment by extending your repayment term. For example, the monthly payment on $20,000 in student loans with a 5% interest rate and 10-year repayment term is $212. If you were to extend that term to 20 years and keep everything else the same, your monthly payment would drop to $132. Of course, getting a longer term will result in more interest paid over the life of your loan. But again, if you need the help now, it may be worth it. You can always accelerate your payments or refinance again in the future as your financial situation allows.
- Choose your features: If your credit and income are in good shape, or if you have a good cosigner on the loan, you’ll have a wider selection of lenders from which to choose. In addition to interest rates and repayment terms, you can also choose a lender based on other features. Examples include a cosigner release program, unemployment protection, interest rate discounts, and more.
If you’re considering refinancing your student loans, be sure to shop around and compare options from multiple lenders so you can ensure you’re getting the best deal.
With Purefy’s Compare Rates tool, you can do this with multiple lenders without needing to visit each individual website. Simply provide some basic information about you and your loans, and you’ll get the opportunity to compare rate quotes and other terms in one place.
Which option is best for you?
Figuring out how to lower student loan payments on private loans can be challenging because you don’t have access to federal income-driven repayment plans or loan forgiveness programs. But depending on your situation, you still have options.
To determine which one is right for you, consider your current financial situation and what you need right now. Also, think about your future goals with your student loans. While some of the options we’ve discussed can provide immediate relief, they may make your loans more expensive down the road. Finally, remember that you will have the chance to refinance again in the future. So if you get back on your feet financially and you want to limit your student loan interest charges, you can make some changes to achieve your goals.