First, consider federal loan borrowers. For many of those who have lost their jobs or have seen their incomes sharply reduced due to the impact of the coronavirus pandemic on the economy, the latest payment deferral will only delay the day a bill comes due when ‘they can’t pay.

Borrowers in this situation would do well to prepare now in case no further relief is granted after President Trump’s executive order expires at the end of this year, said Will Sealy, co-founder and CEO of Summer, which helps student loan borrowers track their loans and identify the best repayment options.

It might be a good idea for these borrowers to apply for an income-tested repayment now and have their loan officer list them in January, when the loan repayment stay runs out, Sealy said. Depending on the borrower’s income and family size, there may be no monthly payments. Borrowers must then recertify their income and family size each year, even if there has been no change.

An income-based repayment is also required before a borrower working in the public sector can apply for their loan cancellation under the civil service loan forgiveness program, Sealy said.

Private loan problems

Meanwhile, millions of borrowers who have private or federal family education loans held in commerce and Perkins loans held by schools have not received automatic relief under the Cares Act, which expires September 30 and is not covered by last month’s decree. . Many of these borrowers are struggling as a result of the pandemic and in need of loan assistance. FFEL program borrowers may be eligible for income-based repayment. Perkins loan borrowers should talk to their schools about potential repayment options, including those that could allow for income-tested repayment.

Regulatory efforts have been made to extend student loan relief to private borrowers, but nothing has materialized. About 70% of private loan borrowers who requested relief directly from their lenders received it, according to a survey carried out in May with more than 1,000 borrowers by

Loan tree‘s

Heroes Division of Student Loans. But many of those who have obtained relief face even greater uncertainty today than federal loan borrowers.

Starting in March, many private lenders offered pandemic-specific assistance to borrowers who requested it. Often, these offers were accompanied by a two to six month forbearance, which means that many borrowers who took these options in the spring have run out of time, or will soon be doing so. Some lenders offer additional forbearance periods, often one month at a time, but there is no guarantee that they will be granted or for how long the option will be extended.

“Private student loan borrowers have no protection. They are at the mercy of the lender, which leaves a lot of trouble, between a rock and a hard place, ”says Joshua Cohen, a student loan lawyer who practices in Connecticut and Vermont.

Limited options

Private loan borrowers who have no more forbearance options might try to apply for a reduced payment option, which some lenders may agree to. Borrowers could also try to refinance and get on better terms, although this is probably not an option unless the borrower has good credit and a stable income. Another choice could be for borrowers to take money from savings or investments to make loan repayments, so as not to damage their credit. Or some might be able to borrow from a family member.

After 90 days of non-payment, many lenders will offer interest-only payments, which could be another option, Mr. Cohen said.

If a payment is four to six months late, the loan is usually sent to a debt collector. If that happens, the borrower may be offered a payment plan, but it’s best to settle the debt if possible, says Cohen. Payment plans are difficult, he says, because most debt collectors are only assigned debt for six to 12 months. Once the debt collector changes, any payment plan is canceled and the time within which a lender can sue will begin again. During this time, the borrower may have breached their payments but will also have paid collection costs, Cohen said. And the statute of limitations on how long a borrower can be sued for payments by a lender is reset as soon as a borrower makes the first payment to a debt collector, he says.

Limitation period

The length of the limitation period varies from state to state. This can be up to 15 years, but is typically between three and 10 years, with six years being the most common, according to Edvisors, a provider of free education payment and financial aid information. Borrowers might try to wait for debt collectors until the statute of limitations has passed, but their credit would be ruined, so this tactic is not recommended. Lenders could also decide to sue at any time before the statute of limitations expires, and borrowers may not receive a warning.

Declaring bankruptcy could be another option for some private student loan borrowers. But it is difficult, but not impossible, to obtain a discharge from student loans in bankruptcy, so this process may be more successful for borrowers who also have other types of debt, such as medical debt or credit cards. credit. Here’s why: If your other debt goes off, you might have an easier time making student loan payments if you can’t pay them too, says Adam Minsky, a student loan lawyer who practices in Massachusetts. and New York.

In any case, during bankruptcy proceedings, borrowers would be protected by a temporary suspension of billing and collection of all debts, including student loans, which could provide temporary relief.

Ms. Winokur Munk is a writer in West Orange, NJ. She can be contacted at [email protected]