FIRE: Student Loans During COVID STRATEGY
From rates to payments to forgiveness to "payment pause", explained.
So you have a shit ton of student loans.
Join the club, stop feeling sorry for yourself, and get moving.
It's time to crush this debt and obtain the freedom you deserve.
With COVID-19, a few rules of the game have changed (at least until 1/1/2021).
Loan payments on all FEDERAL student debt are frozen
Note the use of all caps for FEDERAL - these rules do not apply to loans through private student loan lenders (Navient Corp., Wells Fargo & Co., and Discover Financial Services).
For those that are not sure - If you have a TON of student debt, some of it is probably private OR if you refinanced, all of your new student loans are private.
FEDERAL student debt will be unfrozen (as of now) on Jan 1. 2021
The date has been moved twice now and is likely highly dependent on how COVID cases play out + if a vaccine is found + who is elected president in November.
If you have lost employment during COVID, it will be important to circle that date on a calendar and pursue any income source (as defaulting on student debt is not an option).
0% Interest will be accrued on your outstanding debt
A classic game played by lenders is to not require payment (typically while you are still in college) but still charge interest on outstanding debt).
If you weren't aware that they did this to you - yea it fucking sucks and now you probably owe thousands more.
Luckily, COVID legislation sets all interest rates to 0% on outstanding debt (again until January 1, 2021).
You may have guessed, THIS DOES NOT APPLY TO PRIVATE LOANS.
I know what you're thinking - "why did I refi?".
Don't be too mad at yourself, you probably are saving some money in the long run but you have lost all federal protection (and the minor perks associated with it - forgiveness potential, frozen potential, etc).
Collections CANNOT be made on "defaulted"/unpaid student loans
First off, you cannot actually default on student debt (except in the rarest occasions).
So this really only protects you from being crushed with phone calls from debt collectors for a few months.
This is good news - but does not save you from the reality that you can likely expect your phone to blow up come January.
My advice? Use this time to get your finances in order & a new job/side hustle.
Dive into Dave Ramsey & Stacking Benjamins Podcast, read as many personal finance books as you can find, and start sending out your resume.
Student debt doesn't just "go away" - get serious or seriously suffer.
All payments you make are applied directly to PRINCIPAL
Principal = jargon word for the money you borrowed minus the interest you have to pay.
This is great news for those of us who have maintained employment.
Every dollar you put towards you loans right now SIGNFICANTLY REDUCES the total amount you will have to pay back.
You can save thousands by continuing to pay the same amount you were paying before OR (even better) by throwing as much extra cash you have each month at your loans.
The fucked up part?
Student loan vendors actually make this somewhat difficult - most have removed the payment amount that you were paying before, turned off your "auto pay", and frankly go out of their way to make it a challenge to be prudent here.
Fuck those guys - call them up or look into your payment history to figure out what you were paying before and try to at least match that amount (if you can) and pay more if possible.
Refinance rates are at all times LOWS and NEW OPTIONS HAVE EMERGED
Refinancing rates are at a historical low thanks to the Federal Reserve pumping trillions of dollars into the economy to help the vary companies/people that they put out of work (ultimately to bail out insurance companies & keep the insane lack of hospital disaster preparedness under wraps).
So that means you can refinance your student loans down to around 3%-4% in most cases. Here are some private refi options.
For those of us paying 4-8%, this is amazing.
That being said - DO NOT DO THIS UNTIL THE CURRENT FREEZE ENDS.
You will lose all of the amazing "perks" currently available.
Once Jan 1, 2021 hits - and if they don't extend the protections - GO FOR IT.
Your other option is to use Froogal for partial refinancing.
You can likely get even better rates than 3% AND keep all the protections currently available (no need to deal with the "private lender" bullshit".
Forgiveness is on the table?
Ok - the reality of forgiveness is likely low, but Joe Biden did push early on in 2020 for:
- Complete forgiveness of undergraduate loans for those that make less than $125,000 and that were from public universities
- A $10,000 forgiveness for all other borrowers
Here's my reference.
And here's my opinion - student loans are a huge problem for a lot of us but I truly do not believe forgiveness legislation will ever be enacted. To many parties have too much at stake to disrupt this system. I would not base electoral decisions on this at all.