The student loan changes within the Coronavirus Aid, Relief, and Economic Security or CARES Act can have a big impact on how pharmacists pay back their debt. While the legislature may not change your overall strategy it can temporarily affect some key decisions.

Here are the key provisions:

1. Payments for qualifying federal loans will be suspended through December 31, 2022 and this should be done automatically by your servicer without having to make any requests. Qualifying loans include:

• Direct Federal Loans (Direct Subsidized, Direct Unsubsidized, Direct Consolidation Loans)
• Federal Family Education Loans (FFEL) and Perkins Loans owned by the Department of Education

2. FFEL and Perkins loans not owned by the Department of Education, Health Professions Loans, and private loans do not qualify. 
3. No interest will accrue during this time.
4. All $0 payments made during these months in administrative forbearance will “count” toward the Public Service Loan Forgiveness (PSLF) program and those seeking forgiveness after 20-25 years through an income-driven payment plan.
5. Any wage garnishments or seizure of tax refunds for delinquent student loans will cease during the six month period.
6. Employers can offer up to $5,250 to repay an employee’s student loan balance without counting as realized income. 

One important note on the suspension of payments is that your specific servicer may not have updated their system yet to reflect the change. Therefore, if you happen to make any payments starting March 13th, 2020 prior to the update, these could be refunded through your servicer.

How these changes will affect you will depend mostly on whether you have loans that qualify for this temporary relief, what your overall strategy is, and also whether your income has been affected. Let’s look at considerations through the lens of your strategy.

PSLF

If you have already started the process for PSLF or plan to within this time frame then you basically get a few months of “free payments”.  Remember, even though this is considered an administrative forbearance, these $0 amounts owed for the upcoming months still count toward your 120 payments. And since your overall goal is to pay the least amount of money you are legally obligated to, you should not try to manually make payments or pay your usual amount when you don’t have to. Be sure to keep good records as you want to make sure you get the credit.

Non-PSLF Forgiveness

You can get forgiveness if you make income-driven repayments over 20-25 years depending on your specific repayment plan regardless of your employer.  However, unlike PSLF you do have pay income taxes on any amount forgiven. Generally, this is a good strategy if you are not eligible for PSLF and have a very high debt to income ratio such as 2:1 or greater.

Similar to PSLF, these $0 payment months since count toward your overall 240-300 payments you are required to make. While you could still make payments during this time which would lower your eventual “tax bomb”, you’re likely going to be better off putting your money in other investments or even a high yield savings account especially since whatever the estimated tax you determine today in 20-25 years will be in the context of future value.

Traditional contributions to your employer-sponsored plan (401k, 403b, TSP)  and HSA contributions will lower your adjusted gross income which in turn will lower your income-driven student loan payments.

Non-Forgiveness

If you aren’t planning on going the forgiveness route, you generally have two options. Pay off your loans through the federal loan system using any of the repayment plans and accelerate payoff depending on your situation or refinance to a private lender. While in general private lenders for the past several years have offered much better rates than those for federal loans you used for pharmacy school, they do not currently offer the same COVID-19 relief options.

Therefore, if you have Direct federal student loans and were planning to refinance, you should probably hold off for now. While the 0% interest rate until September 30th is temporary for the time being, you are not going to get a 0% interest rate if you refinance. Now once the time’s up for the administrative forbearance and assuming you are able to get lower rates then make the move.

The other big question if you are in this camp is: Should you make payments even though you don’t have to?

Since no interest is accruing during this timeframe, any payments you do make will attack the principal and potentially accelerating your overall payoff date. That is once you’ve paid off any outstanding interest that accrued prior to March 13, 2020.

While it is certainly not a bad option especially if you have had no changes to your income and you want to pay off your loans yesterday, what else could you do with that money instead? Yes, Kate Spade handbag is an option but I was thinking along the lines of eradicating credit card or any other high-interest outstanding debt, starting or building an emergency fund or even funding an IRA or other investment.

If you want more information on this, you can check out the Coronavirus and Forbearance Info for Students, Borrowers, and Parents section on the Federal StudentAid website.

What if your loans don’t qualify for suspension under the CARES Act?

For FFEL loans or other federal loans that don’t qualify, you may be able to do a Direct Consolidation Loan which could convert them to become eligible. However, you would have to consider the impact on the interest rate and any capitalized interest that may follow.

If you have private or refinanced loans or loans that don’t qualify, then nothing may change for you. If you, unfortunately, had a job loss or change in your income, you can reach out to your specific lender to see what options are available. Some may offer a temporary forbearance or the option for a reduction in payment. Some states are mandating that even private lenders offer this temporarily. 

If you are someone who has refinanced your loans and you have had no change to your income, then you should continue to shop for competitive rates. You’re not limited to doing this one time and it’s not uncommon for another company to provide a better rate than what you refinanced to the first time. You can check out current rates and cash bonus opportunities here.through