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Federal student loan payments have been automatically suspended until the end of the year because of the ongoing pandemic.
If you have private student loans, however, payments remain due — unless you’ve paused them.
Roughly 5% of private loan borrowers were using forbearance as of the end of March 2020, according to June 2020 data from MeasureOne, which tracks data on private student lending.
That percentage doesn’t account for COVID-19’s economic impact since March, yet it already marked an increase of more than 136% compared with the same period last year.
If you need a break from private loan bills, forbearance can help. But you’ll pay more by using forbearance — and it’s not the only way to get a more manageable payment.
Here’s what to know about options.
Most private lenders will let you apply for a natural disaster forbearance due to the pandemic. This forbearance pauses your payments, typically for 90 days, but lenders’ policies differ.
For example, CommonBond is offering forbearance for the duration of the federal state of emergency. Borrowers can extend this break monthly as needed.
David Klein, CEO of CommonBond, calls the policy “the right thing to do, and we don’t see a reason to stop it.”
He adds that forbearance requests at CommonBond peaked in May or June and have sloped downward since.
Other lenders’ programs may be winding down. For example, Earnest offered borrowers three months of forbearance due to COVID-19 before June 30. Borrowers who request assistance because of the pandemic after that date can now receive one month for a limited time.
If a natural disaster forbearance is no longer available and you still can't pay, contact your lender.
You may be able to continue pausing payments with a general forbearance. Some lenders, including Earnest, may also let you make reduced payments if you’ve already fallen behind.
Forbearance can make sense if you need the money from your private loan payments for something more important, like rent. But understand the costs of this option.
While federal loans are currently suspended interest-free, private loans will accrue interest in forbearance, making them more expensive.
Still, paying interest is better than ignoring payments and letting private loans default. That can lead to long-term consequences, like credit damage.
“[Default] can definitely hurt your chances of other financial goals and aspirations you have,” says Garret Colao, a certified financial planner and financial consultant at North Star Resource Group in Minneapolis. “A house, a car — all that stuff will be in trouble.”
Private loans usually default once payments are 120 days past due.
If you’re using forbearance to increase your cash flow, consider refinancing to bridge the gap between no payment and your current bill instead.
Refinancing replaces your existing loan with a new loan with new terms. Unlike forbearance, refinancing can reduce your long-term costs.
“This is a good time to look to refinance at a lower interest rate,” Colao says.
Rates are at , and there’s little downside to because they don’t qualify for federal loan benefits, like the current payment suspension.
If you can qualify for a lower rate, refinancing can now and in the long run.
For example, refinancing a $20,000 private loan from 10% to 5% interest would lower your monthly bills by $52 and save you $6,260 over a 10-year repayment term. Most refinancing lenders offer longer terms that can cut payments even further. At 15 years, for example, the monthly payment on that $20,000 refinanced loan would be $106 less.
You’ll need a credit score at least in the high 600s, steady employment and enough income to cover your debts to qualify. Most lenders let you apply with a co-signer if you don’t meet those criteria.
Klein says the refinancing industry has made it easy to find out if you’re eligible.
“I would implore people to take literally the few minutes to go online and look at what rate they could likely get,” he says.