Do this with student loans if the Senate rejects the HEROES law

President Donald Trump (AP Photo / Alex Brandon)

ASSOCIATED PRESS

This is your next step for your student loans.

Here’s what you need to know.

Student loans

The Senate will probably be to reject the HEROES Act – the new $ 3 trillion stimulus bill passed by the House of Representatives – in its current form. The HEROES law includes several advantages, including one second stimulus check for $ 1,200. If you have student loans, the most important provision for you is probably the forgiveness of your student loan. Under the HEROES Act, if you are having financial hardship, you may be eligible for a $ 10,000 Federal Student Loan Rebate and $ 10,000 Private Student Loan Rebate. Well, here’s the trick: Don’t expect a student loan discount in the next stimulus bill. So given that, what should you do next with your student loans? Here are 5 tips you can do right now and how they help you:

Tip # 1: Get Lower Student Loan Repayment When Your Income Goes Down

If you are having trouble paying off your student loans, then you will want to sign up for an income-based repayment plan. There are four types:

Income Based Refund (IBR)
Pay as you earn (PAYE)
Review of compensation as you earn (REPAYED)
Income Based Reimbursement (ICR)

Income-based repayment plans are for federal student loans only and are based on your discretionary income, family size, and state of residence. If you’re unemployed, on leave, or have suffered a pay cut – and you’ve already signed up for an income-based repayment plan – the time has come to re-certify your income with your student loan manager (the company where you make the monthly student loan payments). Currently, federal student loan payments are suspended, your new monthly payment therefore begins after September 30, 2020. At that point, your monthly payment will be based on your new income. Additionally, if the HEROES law is passed and does not include student loan forgiveness, you can still receive student loan forgiveness through an income-based repayment plan after 20 or 25 years.

How it helps you: You can get a lower monthly payment if your income has changed, and it will automatically go into effect after September 30 when you resume federal payments for your student loans.

Tip # 2: Get a Tax Free Student Loan Discount

With 36 million people out of work, now is not the easiest time to find a job. Many nonprofits and governments have frozen hiring in the wake of COVID-19. However, if you want a student loan discount, the public service loan forgiveness program can help you get student loan forgiveness for your federal student loans. You cannot work in the public service. You may think the requirements are too difficult. You might be worried that almost no one will be approved. You may think that the program will be cut. These are all reasonable concerns. However, if you can find an eligible public service or nonprofit employer, borrowers have benefited from a public service loan discount.

How it helps you: You can receive a student loan forgiveness for your federal student loans and you will not owe any income tax on your student loan forgiveness amount.

Tip # 3: Suspend Your Student Loan Payments Even If You Are Ineligible

If you have FFELP loansUnfortunately, the CARES Act (the $ 2 trillion financial stimulus package) does not help you save money on your student loans. The HEROES law, as several other proposals, would help save you money on your student loans if you have FFELP loans. What happens if the HEROES law is not passed by the Senate? You can use student loan consolidation as your next hack. A Direct Consolidation Loan is a smart tool for organizing your separate federal student loans into one loan so that you have only one monthly payment, one payment date, and one student loan manager. Only downside: your new interest rate is simply a weighted average of your current interest rates (not lower), rounded off up to the nearest 1/8%.

How it helps you: FFELP loans are not owned by the federal government, so borrowers do not enjoy all of the benefits of student loans under the CARES Act. However, there is a hack for your FFELP loans, and it is called direct loan consolidation. Once you have a Direct Consolidation Loan, you may now be eligible to suspend your federal student loan payments, earn 0% interest, and not have your paycheck garnished to pay off your federal student loans – until September 30 . Your federal student loans would also qualify for the public service loan exemption.

Tip # 4: Pay off your private student loans twice a month

Who Said You Have To Make A Monthly Student Loan Payment? Your student loan manager. Guess what? You can pay off your student loans more than once a month. This is especially important for private student loans, as the CARES Act did not help you with suspending private student loan payments. If you owe $ 600 per month, you can split your payment into bi-monthly installments of $ 300 each. Or, you could pay $ 150 per week. Be sure to notify your student loan manager in writing so they will apply your payments correctly and not withhold your additional payment until the next payment cycle.

How it helps you: It’s the same monthly payment, but paying more frequently will save you interest charges. So, the timing of your payments is important.

Tip # 5: Get a Lower Interest Rate – Permanently

How to get a lower interest rate on your student loans? Answer: student loan refinancing. If you’re unemployed or on leave, student loan refinancing isn’t right for you right now. However, if you have a job, refinancing a student loan is one of the smartest things you can do right now. Refinancing a student loan gets you a lower interest rate and pay off your student loans faster. You can refinance federal student loans, private student loans, or both. Why would you refinance your student loans if federal payments are suspended and interest is 0%? Well, you can only refinance your private student loans (and keep your federal student loans outstanding). Or, you can refinance both your federal student loans and your private student loans. Although your federal student loan payments are temporarily suspended, your student loan balance will not disappear after September 30. What’s more, student loan refinancing rates are very low.

This student loan refinance calculator shows how much money you can save when you refinance student loans.

How it helps you: You can get a permanently lower interest rate, which helps you pay off your student loans faster and save money.

Final thoughts

If the HEROES law is not passed – and you do not receive your student loan waiver – you have to prepare now. With all the financial and economic pressure, it can be difficult to deal with everything right now. However, just waiting for a solution like student loan cancellation will not help. Take the time up front to get a student loan repayment plan so you can save money now and pay off your student loans faster.