The COVID-19 pandemic has upended life for everyone. The pandemic has also created new financial burdens for college students. Many degree-seekers find themselves wondering how to afford college during a pandemic.
With college costs continuing to rise, students feel the financial burden. Millions of current students are trying to figure out how to cover their tuition bill for spring, while millions of college graduates are wondering how to make their next monthly student loan payment.
Fortunately, the Federal Student Aid program has suspended student loan payments during the pandemic and dropped the interest rate on all student loans to 0%. Earning a degree also provides greater job security for professionals during recessions. This page explains how to cover your college expenses while in school and how to handle your student loans during the pandemic.
How to Handle Major Expenses
Paying for college is a significant financial undertaking. According to the National Center for Education Statistics, the average cost of tuition and fees ranges from $9,000-$32,000 per year at public and private four-year colleges and universities. Living expenses typically add another $10,000 per year.
Students can apply for financial aid during the pandemic to cover these major educational expenses. This section offers advice and tips on how to afford college during a pandemic.
How to Handle Student Loans in a Pandemic
Before the pandemic, student loan debt reached a new high: $1.56 trillion. For many of the 45 million borrowers repaying student loan debt, the pandemic made it even more difficult to afford their monthly payments. Fortunately, borrowers can explore several options to manage student loans during the pandemic.
This section explains deferment, forbearance, and income-driven repayment options to help borrowers make an informed decision about their loans.
Deferment means temporarily halting monthly payments on your student loans. According to the Federal Student Aid office, borrowers who qualify for deferment do not have to make payments.
How can you qualify for a student loan deferment for COVID? Borrowers can apply for an economic hardship deferment or an unemployment deferment. The economic hardship deferment covers borrowers receiving any means-tested benefits such as welfare or those who work full time but earn less than 150% of the poverty limit. The unemployment deferment covers anyone receiving unemployment benefits and those unable to find full-time jobs. Both options offer deferments of up to three years.
Is Deferment a Good Option for My Loans?
Before applying for deferment, borrowers should consider the pros and cons. While deferment allows borrowers to stop making monthly payments for a set period of time, interest can still accrue on the loan. As a result, deferment can add to the loan’s total cost and increase the amount of time to pay it off. However, borrowers can pay the interest as it accrues during a deferment to lower their payments and avoid increasing their total loan.
Participants in loan forgiveness programs like Public Service Loan Forgiveness or income-driven repayment forgiveness should also consider how deferment affects their loan. Borrowers can typically still participate in forgiveness programs, but they will not make progress toward the 120 monthly payment requirement while in deferment.
Deferment policies can also depend on the type of loan. Subsidized loans generally do not accrue interest during a deferment.
Like deferment, forbearance temporarily suspends monthly student loan payments. During forbearance, borrowers can also reduce their monthly payment. Only borrowers who demonstrate financial hardship qualify for a forbearance.
In March 2020, Congress officially placed all student loans in forbearance for COVID. As a result, federal borrowers automatically received an administrative forbearance for their loans, which currently extends through Dec. 31, 2020. The federal student aid program also automatically set the interest rate at 0% for federal loans. Borrowers can choose to still make payments during this administrative forbearance.
Is Forbearance a Good Option for My Loans?
Under usual circumstances, forbearance offers temporary relief for student loan borrowers. Typically, forbearance lasts no more than 12 months, and during that time interest continues to accrue. This means forbearance can add to the length and amount of a student loan. Forbearance can help borrowers afford living expenses during a financial crisis, and by putting a loan into forbearance borrowers can protect their credit scores.
Student loan forbearance for COVID currently extends to all borrowers. More than 40 million borrowers with federal student loan debt have had their loans placed into forbearance. Starting in March 2020 and extending through the end of the year, borrowers pay 0% interest on all federal student loans, including direct loans and Perkins Loans.
The federal loan payment suspension only applies to loans owned by the Department of Education. Borrowers can contact their loan servicer to determine whether their loans qualify for administrative forbearance and the 0% interest rate.
Switching to an Income-Driven Repayment Plan
Borrowers can also consider switching to an income-driven repayment plan. These plans calculate your monthly payment based on your income and family size. Most plans cap the monthly payment at 10% of your discretionary income, meaning some borrowers do not pay anything each month.
The federal student aid program offers four different income-driven repayment plans. Qualifying borrowers also qualify for loan forgiveness on any unpaid balance after 20-25 years of making payments. Borrowers must complete an application to switch to an income-driven repayment plan. Loans in default do not qualify, so borrowers should consider their options before applying for default.