How to Manage Your Student Loans During the Government Shutdown

When a government shutdown occurs, it means there has been a failure to fund the federal government, and it can no longer operate at full capacity. Whether it’s a partial government shutdown or total shutdown, it can significantly impact federal employees with student loans and federal student loan borrowers.

If you have been furloughed or are in the difficult position of going without pay for the shutdown duration, it can be a stressful time. While lenders, credit card companies, utilities, and others may offer financial assistance or temporary relief, those with student loans are still required to make payments. This is because the U.S. Department of Education remains fully funded and continues to collect student loan payments.

Here’s how you can manage your student loans during the government shutdown.

Proactive Communication

When you are the recipient of student financial aid and are making payments on your student loans, you will still be expected to make monthly payments when a government shutdown occurs. For federal workers who are furloughed during this time, it’s important to revise budgets, reduce spending, and look into assistance that can help you continue to meet your student loan obligations.

One of the first things you can do in this situation is to connect with your student loan servicer to discuss your financial hardship and concerns and whether there are options available to you for temporary payment relief.

If you’re not sure who services your loans, you can visit the U.S. Department of Education’s Office of Federal Student Aid to identify your loan servicer. Here, you can find your loan servicer, determine outstanding loans, and access contact information for each servicer. For private student loan information, you can utilize recent lender statements or obtain a copy of your latest credit report.

Review Repayment Options

If you are struggling to make student loan payments, there are many resources and options available. By communicating with your loan servicer and others, you can explore different forms of relief that you may be able to take advantage of.

Forbearance or Deferment

As a federal employee impacted by a federal government shutdown, you can temporarily postpone making payments on your student loans through forbearance or deferment.

Forbearance is a period in which your monthly payments are temporarily suspended or reduced, while deferment is a temporary postponement of loan payments allowed under certain conditions. With loan deferment, instead of interest that continues to accrue, the interest during the deferment period typically doesn’t accrue on subsidized loans such as Direct Subsidized Loans, the subsidized portion of Direct Consolidation Loans, Subsidized Federal Stafford Loans, and more.

However, it’s important to note that interest generally will accrue on student loans during a forbearance or deferment. When this period ends, the interest will compound, and if left unpaid, can increase your monthly payments when you resume making payments. While both options may offer reprieve during your furlough, you could experience a higher loan balance stemming from the interest accrued over that time period.

When considering these options, you should work with your servicer to help you identify the right form of temporary relief.

Public Service Loan Forgiveness

For those working toward Public Service Loan Forgiveness (PSLF), some considerations should be made before opting to postpone federal student loan payments. In particular, the U.S. Department of Education provides guidance to borrowers that deferment or forbearance periods don’t count toward the 120 payments needed to qualify for loan forgiveness under the PSLF program. While this doesn’t disqualify you, it will extend the time necessary to complete the repayment schedule.

Another option for managing student loans during the government shutdown is to enroll in an income-driven repayment plan. These plans are designed to set monthly payments based on your income changes, including pay as you earn. If you are furloughed and, therefore, receiving little-to-no income, it’s possible to make payments as low as $0 per month.

A reduced payment can also help you stay on track for PSLF if you are working toward that.

If you already happen to be on an income-based plan, you can request a payment recalculation or connect with your servicer to make adjustments to reflect your current reduced income. You should not presume that your plan will automatically be adjusted and should always communicate changes to your servicer if your income has changed since your last income tax statement.

Once the shutdown is over, it’s essential to contact your student loan servicer and notify them that you are back to work and able to resume previous payments.

Other Repayment Options

In addition to forbearance, deferment, or income-driven repayment plan, there are other repayment options available for private student loans that may help you navigate this financially challenging time. Because these plans tend to vary among lenders, it’s in your best interest to contact each lender to learn what’s being offered and what will work best for you.

If your loan servicer or lender doesn’t offer any viable options, you may wish to shop around at different banks and credit unions to find lenders that provide interest-free emergency loans. Many financial entities provide a range of loans to help finance unexpected finances and assist borrowers in times of emergencies.

While it’s generally not best practice to borrow funds in the event of lost income, it may be worthwhile to borrow interest-free money until the shutdown ends and you begin receiving income again.

Student Loans During the Government Shutdown

The Takeaway

Even as the government is shut down, borrowers repaying their student loans must continue making loan payments. For borrowers who are federal employees that have been furloughed or are trying to manage their debt, a shutdown may have negative financial impacts and make it more challenging to make loan payments.

To help manage student loans during a government shutdown, borrowers should communicate with, and seek assistance from, their loan servicer. Additionally, they should be encouraged to explore repayment options and temporary relief, such as a forbearance or deferment, income-driven repayment plans, or other repayment options and forms of financial relief from various lenders.

At T&I, we make it easier for you to invest in your human capital with student loans through our partnered company, Student Choice. Give us a call at (248) 397-9471 today to learn how we can help you.

About Tammy Newcomb

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