In most cases, we recommend that students and families stay within the federal student loan program for their college borrowing needs, at least during the college years. That means borrowing Direct Student Loans or Parent PLUS Loans. Even though the interest rates– at least for PLUS loans– may be higher than what you might pay elsewhere, we believe that the federal loan protections are extremely valuable for families during the college years. Expenses may be higher than anticipated, college may take longer, siblings may come along and further constrain the family’s finances. In such circumstances, the loan protections can act like an insurance policy for the family’s financial stability.

The student loan relief portions of the CARES Act are another example of why the federal loan programs should be your starting point. Borrowers in the federal direct loan programs will have payments suspended with no interest accruing for the next three months. Even better, the suspended payments count as qualifying payments under forgiveness programs such as Public Service Loan Forgiveness and Teacher Loan Forgiveness.

The loan suspension is automatic, so all borrowers in the federal direct student loan program will have payments suspended regardless of ability to pay. Note that this only applies to direct loan programs; older loans such as those under the FFEL program and Perkins loans will still have payments due, with a few exceptions based on a small pool of these loans being held by the federal government. Borrowers who are unsure of their loan type can look up their loans to determine what type they have.

Borrowers who wish to continue making payments during this period will have their payments applied as follows:

  • First to any outstanding accrued interest. This only happens in income-driven repayment plans, not standard repayment plans.
  • If there isn’t any outstanding accrued interest, or if the payments during this time period exceed the accrued interest, then the payment will go 100% to principal reduction.

Because payment suspension is automatic, borrowers who wish to pay will need to make payments manually to their loan servicer.

If you have private loans and are experiencing a financial hardship, you will need to reach out to your lender directly to determine what, if any, options they provide. Many are offering payment deferral, but the terms of the deferral depend on the lender.