As we are approaching the 2-Month mark of the COVID-19 shelter in place, there have been a lot of changes in the world of student loans. Here are the latest updates:

(1) Mistake on automatic forbearance of FedLoan accounts can negatively affect your Credit Report

Upon passage of the CARES Act, there were 4 main federal student loans key points:

  • The Zero Interest Waiver is effective immediately and automatically for 6 months (until September 30, 2020). All interest will be back-credited
  • Automatic Suspensions of payments (forbearance) for up to 6 months (until End of September 2020). You will get credit back for any payment made during this crisis
  • Benefits begin on March 13, 2020 to the end of September 30, 2020.
  • For 10 year PSLF (and other forgiveness programs), you will NOT get penalized for NOT paying payments during the 6 month Forbearance period. So it will count toward your 120 income-based qualified payments - but keep track of it

Since student loan deferment and forbearance were automatically imposed by the federal government, it should NOT affect your credit score. Unfortunately, we have gotten multiple reports from our members that their credit score suddenly dropped close 30 points within the last month due to “late payments” or in “account in default”.  Here is how you can check: 


  1. Check your credit score to see if you are affected
  2. Contact your specific federal loan servicer to see if there was a mistake on their end.
    • They should be able to contact the credit bureau to fix it during the call.

  3. If you are all caught up on your loans payment, and still feel that Fedloan is inaccurately reporting your payment status, you can file a dispute directly with the company.
    • Step 1 Download and print the Fedloan credit dispute form.
    • Step 2 Fill out the form with information such as your Fedloan Servicing account number or Social Security number, along with other specific details about your dispute. 
    • Step 3 Mail the completed form to:
      • FedLoan Servicing Credit P.O. Box 60610 Harrisburg, PA 17106-0610
    • Note: You can also fax the dispute to (717) 720-1628. When submitting your dispute, include any supporting information, such as a copy of the credit report that you are disputing.

  4. Recheck your credit score again within 1 month to make sure it is accurate 

(2) Lower interest rates for new borrowers

This is actually great news for incoming or current optometry students since they can borrow as low as 4.53% (compared to the current average rate of 6.8%). In addition, parents with children in undergraduate, rates will drop to as low as 2.75%

Summary of New Federal Student Loans Interest Rate (starting July 1, 2020)

Can I get these lower federal interest rates if I already have student loans?


Unfortunately, these student loans interests are only available to students who are enrolled in an education program for the 2020-2021 school year. The only ways to lower your federal student loans currently are:


  1. Use the REPAYE plan if your income is low relative to your debt (Basically going for PSLF or total loan forgiveness) 
  2. Refinance with a private lender

(3) Student Loan Refinance Update

As we approach the end of May in tracking student refi rates, it does appear that many major lenders are slowly lowering their rates as the economy revamps.


Current lowest rates are Splash - 1.99% Variable/2.88% Fixed 5 years, but major Lenders like Earnest and Sofi are not that far behind.


Check here to compare Current Student Refi Rates


Unfortunately, First Republic is currently not accepting new applications starting May 8th, 2020 due to short restructuring of their current Student Refi Program. They will have a new offering within a few shorts months.


We are still advising: 


  • Borrowers with Federal Loans: Wait until September 2020 to reassess. In the meantime, enjoy the temporary 6 month 0% Interest waiver. 
    • Even though there is automatic payment deferment, we are still recommending borrowers to make the minimal monthly payment requirements that are within their budget. No need for aggressive extra loan payments at this time

  • Borrowers with higher interest Refi private Loans (4-5%): If you can get a lower Refi rate (usually 1% or greater), then we recommend applying since rates are fairly low at this moment. If you want to wait a few months to see where rates are, that is definitely acceptable as well.
    • Continue making your required monthly payments but hold off on making extra aggressive payments during this time until your financial situation is stabilized.

  • Borrowers with lower interest Refi private Loans (2-3%):  Very unlikely that you will get a better rate than what you currently have. So enjoy the low refi Rate. 
    • Continue making your required monthly payments. but hold off on making extra aggressive payments during this time, until your financial situation is stabilized. 

(4) HEROES ACT Proposal (Pending)

The $3 Trillion Bill pproposed by the Democratic House of Representatives on May 12,2020 to help essential workers, but a new amendment was added to the bill a few days later to change the requirement for student loan forgiveness to limit borrowers who are economically distressed.  The bill is quite long but here are the four key points in regards to student loans. 

HEROES Student Loans 4 Key Points (Revised)

  • (1) Extend automatic federal payment deferment and 0% interest waiver until September 30, 2021 (basically another year).
  • (2) Loan forgiveness up to $10,000 Federal Loan for ECONOMICALLY DISTRESSED borrowers; loan with the highest interest rate will be paid first.
  • (3) Automatic payment deferment and 0% Interest waiver for private refi of student Loans (Now until September 30, 2021)
  • (4) Loan forgiveness up to $10,000 Private Loan for ECONOMICALLY DISTRESSED borrowers; loan with the highest interest rate will be paid first. But active 90 days after September 30, 2021

What is an economically distressed borrower?


  • Had a monthly payment of $0 under income-contingent or income-based repayment;
  • Was in default on their student loans;
  • Was at least 90 days past due; or
  • Whose payments are suspended under existing forbearance options, such as economic hardship, unemployment, or cancer.

Unfortunately the majority of optometrists who are financially responsible or have a stable job (hopefully all you ODsonFinance gals and guys out there) WILL NOT qualify under this new requirement.


Predictions:


In our opinions, the HEROES act will likely not pass due to Republican opposition in the Senate.  We do agree that this is a good start that will bring light to the impending student loan crisis, and will hopefully structure some of the bill outline with CARES Act 2.0.


Please remember that as we move into the political season, expect more bill proposals relating to student loans to simply fill empty campaign promises, but these will likely not materialize into any legislative laws.


Our guess - we can realistically see Congress passing a bill to:


  • (1) Extend federal payment deferment and 0% interest waiver until the end of 2020 as the economy continues to recover

  • (2) Extend the PSLF payments to count toward the total 10-year forgiveness until end of 2020 since this directly impacts many health care providers

  • (3) Keep lowering student loan interest rates for new borrowers year after year, until student rates are within 1-2% range therefore lessening the student loan burden for the younger generations and making higher education more accessible.  

Do we think total student loan forgiveness will happen? HECK NO. That is a $1.5 Trillion cost to the government when they are already hemorrhaging so much money. Our economy is likely going to need more stimulus money with the CARES Act 2.0 and the IRS did not get its cash infusion in April when they extended the tax deadline to July 15, 2020. 

Summary

We still don’t know the long-term economical impact of COVID on our profession as optometry offices slowly begin to reopen. We predict that OD job losses might be higher than expected as business owners simply cannot afford to hire associates due to slower traffic. 


Even though paying your student loan might be low on your current list of priorities, we still advise people to have a solid game plan; just because we are in a pandemic doesn’t mean you can completely forget about them.


But cash is key right now, and having a minimal 6-month emergency fund should be a top priority for all optometrists.  Keep trucking along, be flexible and reassess as needed. We are here to help.

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About DatBuiOD

Dr. Bui is a lead optometrist at the Apple Wellness Center in the heart of Silicon Valley. He has a deep passion for ocular disease and healthcare technology. He started his career with $230K of student debt and has been focusing on strategies on attacking this massive debt such as budgeting and personal finance, along with investing. He is a big advocate for passive index funding with a small portfolio toward technology stocks. Lastly, he wants to help all new doctors and high-earning professionals navigate toward wealth and financial independence.

1 Comment

  1. Dan on May 15, 2020 at 10:16 pm

    You rock Dat!

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