Coping with Debt During the Covid-19 Crisis

You are not alone. Many people are experiencing anxiety over the potential strain on their personal finances due to the coronavirus outbreak. If you find yourself struggling to pay your bills or loans on time, the “Coronavirus Aid, Relief and Economic Security Act” (the “CARES Act”), which President Trump signed into law on March 27, 2020, may provide you with some additional relief. There are also other steps you can take to help manage your debt during the pandemic.

1. Know your rights under the CARES Act, which impacts federally-held student loans and government-backed mortgages.

Your federally-held student loans are automatically suspended until September 30, 2020. The CARES Act has suspended payments and interest on federally-held student loans until September 30, 2020. Nonpayment during this six-month period cannot be used to negatively impact a person's credit score or qualification for loan forgiveness. The law states that “each month for which a loan payment was suspended” will be treated as if “the borrower of the loan had made a payment.” It also suspends any wage garnishment or tax refund reduction for people who have defaulted on their federal student loans.
The CARES Act does not, however, apply to student loans under the Federal Family Education Loan Program that are owned by commercial lenders or Perkins Loan Program that are held by educational institutions. The law also does not apply to private student loans owned by banks, credit unions, schools, or other entities. These entities may be offering some accommodations for their borrowers. If you are in a situation where you need assistance, it is best to make contact and ask for relief. Immediately document that communication including the date and time of the contact, who you communicated with, what was said by both you and the lender. Ask for a letter or email documenting any agreement that is made.
Your government-backed mortgage allows you to request and obtain forbearance from payments for up to one year. The CARES Act directs mortgage servicers of government-backed mortgages to offer up to 12 months of forbearance, in up to 180-day increments, to borrowers affected by Covid-19 pandemic. This includes loans from the Federal Housing Administration, Department of Veterans Affairs, Department of Agriculture, Home Equity Conversion Mortgages (reverse mortgages), Native American and Hawaiian home lands loans, HECM/reverse mortgage loans and Fannie Mae and Freddie Mac loans. Servicers must also offer up to 90 days of forbearance relief for government-backed multifamily mortgage loans, provided the landlord-borrower extends renter protections to tenants.
A forbearance is not automatic. You must call your servicer and attest to a financial hardship caused by the coronavirus outbreak. However, according to the law, the servicer must grant forbearance without requiring any documentation to support your plea of hardship.
Additionally, services are prohibited from initiating or moving foreclosures forward for 60 days – starting from March 18, 2020—except for vacant and abandoned properties.
2. Contact your credit card companies and other lenders.
If you’re unable to pay your bills on time, contact your credit card companies and other lenders to let them know about your situation due to the COVID-19 outbreak. These financial institutions may be able to offer a variety of options to help you. This could include waiving certain fees like ATM, overpayments, and late fees, as well as allowing you to delay, adjust, or skip some payments.
When contacting lenders, explain the details of your situation. Be prepared to discuss your income, expenses and assets. Suggest changing the date of your payment, requesting a realistic payment plan, or asking for a payment extension. Seek clarification on any arrangement and document the conversation. Under the CARE Act, if a lender agrees to modify or suspend a payment, it must report you as paying in compliance with the loan during the time period it agreed to modification (if you comply with the agreement).