Optimizing Your Financial Stability Amid Coronavirus Challenges

By Jon D. Long, Attorney at Law

COVID-19 impacts are creating rare opportunities and dangerous pitfalls for consumers, and the devil is in the details. The amount of financial information related to coronavirus can be overwhelming and challenging to sort through. Still, there are valuable nuggets of good news in The CARES Act that are being overlooked by consumers struggling with student loan debt. Conversely, in the fine print that accompanies seemingly beneficial forbearance options are easy-to-miss details that could have a devasting impact in a few months. Don’t miss these details that could harm or help your situation.

Six Financial Opportunities to Take Advantage of Now

• Get your student loans out of default. Perhaps the most significant opportunity the CARES Act provides is the ability to get your covered federal loans out of default.  Curing default has MANY advantages. One of the ways out of default is to make 9 of 10 rehabilitation payments.  Often this is daunting because the rehabilitation payments can sometimes be quite large. If you owe $200,000 in student loans, your payment may be $2,000 a month!  The CARES Act provided for a cessation of payments and elimination of interest on covered loans through September 30, 2020. During the payment suspension, these $0 payments count toward this rehabilitation total.  If you have already started a rehab of your loan, these months count toward your total of 9 needed payments.  If you have not started, YOU REALLY SHOULD APPLY NOW.  April, May, June, July, August, and September payments will be covered without you paying a penny.  That just leaves you with October, November, and December. Even if you are not sure you will be able to make those October-December payments, apply now.  You’ll likely never again be given a “make 3 of 10 payments” opportunity to cure defaults through rehab payments.
• Stop student loan wage garnishments. If you were facing a wage garnishment before the pandemic, these will stop between April and September.  If you do nothing else, they will resume in October.  Here’s an insider tip: If you enter a rehab cure of the default, wage garnishments will stop after making 5 of the required payments.  While in ordinary times, this presents an often impossible hurdle–you would be required to make 5 rehab payments WHILE still being garnished–you have a golden opportunity right now.  Apply for rehab NOW, you will have $0 payments through September, and guess what, come October, you will already have the 5 required rehab payments behind you and the wage garnishment will not start back up.
• Consider a direct consolidation loan. What if you have federal loans NOT covered by the CARES act relief, such as Perkins loans, most FFEL loans, or many Parent Plus loans.  You might consider a direct consolidation loan.  All consolidation loans issued by the federal government are now direct loans.  Guess what. You just changed your non CARES Act loan into a loan covered by the CARES act. It typically takes 30-90 days to process a consolidation loan, but once processed, there will be no payment on this now direct federal loan through September.  A word of caution for those currently in some form of income-based repayment or public service loan forgiveness with these non-covered loans.  If you consolidate, you will lose the time you have been making payments toward your 10 year, or 20-25 year forgiveness.
• Request a recalculation if your income has dropped. There’s a final twist for those who have already been taking advantage of income-contingent repayment options.  These options require you “recertify” your income and have your required repayment recalculated once every 12 months.  For those whose re-certification is scheduled to occur between now and September 30, there is an automatic extension of 6 months.  You can ask for a recalculation of your required payment if your income has dropped since your last certification.  If you have suffered a drop or elimination of income, and you were in an income-contingent repayment plan, ASK FOR A RECALCULATION now and your payment may be reduced to $0. This reduction will last until your next annual certification.
• File your 2019 taxes now to avoid garnishment. When you are in default, a student loan lender can take action to collect.  This includes intercepting your tax refund and garnishing your pay. Under the CARES Act, tax intercepts and wage garnishments stop until September 30, 2020.  Now is the time to file those 2019 tax returns you might have been holding off because you knew your student loans would intercept them.  If you submit now, you will receive your refund. If you haven’t filed for past years, and you are due a refund, file them now.
• Access unemployment benefits. For low wage earners who have lost their jobs, the unemployment available at this time may enable them to improve their financial situation. The federal government is adding $600 a week to Tennessee’s $275 maximum a week, resulting in unemployment benefits of $875 per week. It’s the equivalent of a $45,500 yearly salary. If you’re a worker typically earning $12 an hour, or about $25,000 a year, this may help you improve your financial situation.

Two Financial Pitfalls to Avoid

• Spending your stimulus check on non-priority purchases. If you’re still working, SAVE the stimulus money because you don’t know what’s coming next. We haven’t seen the end of layoffs. If you have no income right now, prioritize spending. Use it for your health, a roof over your head, food and transportation–not for the creditor that is harassing you with the most calls.
• Carefully consider forbearance because it could set you up for foreclosure. If your mortgage company offers you the chance to defer payments for three months, be aware that in the fourth month all four months payments may be due. You should fully understand how the missed payments must be repaid. A possible mortgage loan modification may be discussed as an additional option to all payments due in month four.  Be aware you may not qualify for the modification.  Mortgage companies offered similar deferrals after hurricane Katrina. In month five, a large number of people received foreclosure notices.

Long, Burnett and Johnson offers free, no-obligation consultations to consumers who are seeking to solve financial problems. When possible, we educate consumers about actions they can take to avoid the need for our services. While it should never be entered into lightly, when foreclosure looms, creditors are calling, lawsuits are pending, or debt seems insurmountable, bankruptcy can offer protection from creditors and help you get on track again. Give us a call if we can answer questions or help you weigh your best options for dealing with debt.