Insights & Advice


Why now is the BEST time to make payments on your student loans

In brief:

  • The CARES Act, enacted on March 27, 2020, provided federal student loan relief
  • Federal student Loans have a 0% interest rate from March 13 through September 30
  • Federal student Loan payments are suspended
  • Defaulted federal loans will not go into collections

If you have student loans, you may have noticed that automatic payments made towards your federal student loans have stopped. This is because of the CARES Act, passed on March 27, 2020. The CARES Act is a stimulus package created to provide relief in response to the COVID-19 crisis. The Act created programs for both individuals and small businesses, through payroll protection loans, stimulus payments, increased unemployment benefits, as well as some assistance for student loan borrowers.

As part of this Act, all Direct Federal loans and Federal Family Education Loan Program (FFELP) loans dropped their interest rates to 0% and automatically pushed these loans into deferment. At first glance, this sounds like a great deal for those carrying these types of loans. However, there is more to this deferment than meets the eye.  Here is what you should do:

Automatic Forbearance

The student loan provisions from the CARES Act were automatically applied to all federal student loans. As a result, borrowers were surprised to see their regularly scheduled student loan payment was never made. This could be helpful for those who have lost their job and cannot comfortably meet their debt obligations. Others were surprised to see their credit score drop. Yes, you read that right. As a result of the automatic forbearance, federal loan servicers have reported ‘missed’ payments to credit reporting agencies. To determine whether you have been affected, you should look at your credit report. Typically, you are allowed a free credit report annually, but that has changed to weekly since COVID-19. If you find that your credit score has dropped due to missed payments from your federal student loans, you should contact your lender and request they correct the faulty report. If they are unwilling to do so, you (Check out this resource for details.)

If you can, you should

0% interest on loans is applicable through September 30, 2020. This means that no interest will be assessed on your loans – whether you are making payments or not. Typically, each payment made towards student loans consists of principal, interest, and possible service or late fees. The part of your payment that goes towards principal is what reduces your overall loan balance, while the interest charge is what the bank earns for carrying your loan. Until September 30, your payments will no longer consist of any interest. I strongly urge you, if you are able, to keep making your regular payments on your student loans. Until the 0% interest rate expires, more money will go towards principal, allowing you to pay off your student loans quicker than ever before. A 0% rate is not something we often see, so take advantage of the greater impact this will make on your overall financial picture.

Not all loans are covered

For many borrowers, including myself, not all student loans are federal. The government limits the amount of federal loans available and instead students must go to private lenders to apply for loans. If you have a provider such as Discover, Citizens, or SoFi, you likely have a private student loan and did not benefit from the CARES Act. If you need assistance, I implore you to reach out directly to your lender and let them know your situation; many are even offering favorable repayment plans tailored to your needs.  Most banks would rather work with you than leave you high and dry on a path towards default.

Those currently unaffected by COVID-19 should look at their terms anyway. Upon further investigation into my own private loans, I discovered I was paying an interest rate several percentage points higher than what is currently offered. Sites like and offer a place to compare interest rates, often leading to better terms. I was able to keep my same monthly payment and cut years off my term! This is a suggestion only for private borrowers. Those with federal loans have other considerations that need to be accounted for first.

The CARES Act has attempted to provide some much-needed relief for individuals and businesses. It is hard enough to manage your own financial plan, especially during an unprecedented crisis, yet it’s important to stay proactive and informed. A seemingly small decision today can have a major

If you have Federal Student loans, please investigate your terms. If you have private student loans, also look into your terms! You may be able to get some help, just by picking up the phone and asking. Lastly, if you can afford to continue making payments, PLEASE DO. As always, consult your financial advisor for questions specific to your particular situation.

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