Josmell Pérez has a master's degree and has gone through the process of buying a home - more than once - but he says it's still hard to wrap his head around student loans.
'The mortgage system, credit cards, other parts of finance make a whole lot more sense," Pérez said.
He and his wife have multiple degrees, and multiple student loans, but they don't talk about them much. They just make their monthly payments and move on.
"It's like a black hole. Once you go down, it's like a rabbit hole," Pérez said.
He's heard the federal CARES Act, passed by Congress during the coronavirus pandemic, suspended interest on some student loans, but he wasn't entirely sure whether it would affect him.
An estimated one million North Carolinians owe student loan debt, and many may be wondering how to handle their debt during the current financial crisis.
Rochelle Sparko is director of North Carolina policy at the Center for Responsible Lending, a Durham-based nonprofit that advocates for fair lending practices. She has one piece of advice for Pérez or any student loan borrower.
"Please do talk to your servicer and make sure that your loan is covered before you make decisions about whether to pay or not," Sparko advises.
For some, unemployment or financial uncertainty might mean it's hard to make student loan payments right now.
Others who have stable work, and just got a windfall in the form of a stimulus check, might be wondering if now's a good time to pay ahead.
Even if your loan is not covered by the CARES Act, you may have other options available, that Sparko says your servicer should be able to talk to you about.
Calling your student loan servicer might sound like an intimidating chore, so here are a few important things borrowers may need to know. Starting with, what's new?
"The federal government has made it so federal student loan borrowers do not have to make payments between mid-March and September," Sparko said. "During that period when they do not need to make payments, interest will not accrue on their loans nor will they be assessed late fees."
This is called a forbearance, and it's good news for people who have federal loans and are struggling to pay ... but there are caveats.
What should borrowers do with this information?
"My answer basically differs from student to student," Sparko said. "The loan servicer is actually the only entity that can give you full information."
The CARES Act only applies to federal loans, so the first thing you should ask yourself is whether your student loan is federal or private. However, private loans may offer similar relief. In some cases, you may have to call your servicer and ask.
"You do have to be prepared to be an advocate for yourself to some extent when you talk to them," Sparko said.
When you call up your loan servicer, arm yourself with these questions:
- Who owns your loan, and is it federal or private?
- Does the owner of your loan offer any forbearance during this time period?
- Are there any costs associated with that forbearance? Will interest accrue? Will you be assessed late fees or other fees?
- If you take advantage of the forbearance, how will you get out of it? Do you need to bring your loan current at the end of the forbearance period, or can you tack those payments on to the end of your loan?
- Will taking advantage of a forbearance period affect your credit score?
What if someone is weighing whether or not to use a federal stimulus check to pay ahead on their student loans. Is that a good idea?
"If you could use your stimulus payment to finish paying your student loan debt, then maybe just retiring the debt is the right decision for you," Sparko said.
Since no interest will accrue on federal student loans through September, borrowers who continue to pay will see all of those payments go toward the loan's principal, helping them pay off their loan faster. There's also no harm in waiting out this year's economic uncertainty, and paying ahead later.
"I think the biggest thing to remember is, if your loan is covered by the CARES Act, nothing, nothing bad is going to happen if you make a zero dollar payment," Sparko said.
For some, there can be a downside to continuing to pay a federal loan.
Sparko says it might not be beneficial for borrowers who are enrolled in an income based repayment plan or who are seeking public service loan forgiveness to pay a federal loan during this forbearance period.
Let's say, like Pérez, you're seeking public service loan forgiveness. That program allows people who work for non-profits or in government or education to have their loans forgiven after a number of years of public service.
Pérez works for UNC-Chapel Hill and is planning to count his time there for loan forgiveness. So, what about his family?
"They may want to consider not making payments, even if they are capable of doing so," Sparko said. "Because these months of zero payment with zero interest accruing, are going to count toward the date when they get the forgiveness."
In other words, if Pérez makes no payments through September, he could still count these months toward his public service. He said he was shocked when he discovered this and had no idea there could be a downside to paying his loan.
"The hard part about it is that now, knowing that, I'm like, 'Oh, I need to make sure I find the time to make that phone call within everything else in life,'" Pérez said.
As tough as it may be, many borrowers could benefit from making that call.