Deferments Will End, But the Bills Will Keep Coming. Here’s How to Prepare

Photo to accompany story about what to do when deferement ends. Getty Images

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A major lifeline for many Americans will soon expire. 

Federal student loans have been paused since March 13, 2020, giving a bit of breathing room for people with student loan debt. But that’s not going to last forever. Administrative forbearance will end and those loans will be due.

The same is true for any mortgages in default. Government-sponsored enterprise (GSE) backed mortgage lenders will be able to start the foreclosure process on mortgages in the coming months.

While some people have returned to work, the coronavirus pandemic has left millions of Americans still unemployed or furloughed. Even those returning to work could take quite some time to regain their financial footing after months of lost income. 

The big question is: How to survive without government or lender-backed assistance?

If you’re worried about life after deferment and forbearance programs end, here are some of the proactive steps you can take.

Step One: Assess What You Can Pay

You can prepare yourself now for a new reality. The first step is to truly evaluate your full financial picture. 

Write out how much income — including unemployment benefits — you receive each month. Then list out the monthly minimum payments on all debts and bills. 

This information will help you have an honest conversation with lenders about what you can afford to pay, if anything, once deferment and forbearance programs end. 

Step Two: Be Proactive About Talking to Lenders

It’s better to ask for forgiveness than permission. 

This adage often comes up when handling difficult, nuanced or uncomfortable situations. But it is not accurate when applied to your bills and debts. 

It is far better to ask for permission than forgiveness. You need to get in touch with your lenders before your deferment or forbearance program ends in order to discuss possible solutions. It’s helpful if you can be upfront about how much you can afford to pay if the minimum payment is out of reach. 

Step Three: Research Other Forbearance Programs for Student Loans

Federal student loans were placed in administrative forbearance on March 13, 2020, which means interest is not accruing on most federal student loans and no payments were required.

But this action is set to expire on December 31, 2020. Once administrative forbearance ends, you can explore other forbearance or deferment options that may be available from your student loan servicers. 

If you have federal student loans, you can evaluate income-driven repayment plans if your loans were not yet on one. If your loans are currently on an income-driven repayment plan, call your lender to discuss recertifying your income to ensure the monthly payment reflects your current financial situation. Student loans in default are not eligible for these programs. 

Step Four: Additional Relief Options for Mortgages

Federally and GSE backed mortgages are eligible for up to 180 days of forbearance if you’ve experienced a financial hardship due to the pandemic — but this isn’t automatic. You must request and receive confirmation before you stop making payments. You also may be able to get an extension for another 180 days. 

In addition, these same mortgages cannot be foreclosed on until at least December 31, 2020. Even if your mortgage isn’t a federally or GSE backed mortgage, it’s worth calling and asking about forbearance and/or relief programs. Just be clear on the terms. You can find a list of questions to ask your mortgage lender here

Step Five: Other Relief Options for Credit Card Debt

Credit card companies are also offering various levels of relief, so be sure to call and ask if they can offer you any accommodations because you lost your job or were furloughed due to the coronavirus pandemic. 

If you have enough income coming in to pay some (but not all) of your bills, you can also consider staggering your use of currently available forbearance programs if there is no time limit on their availability. This would only be a useful option if you’re worried about future income stability. You should also be mindful to maximize the deferment plan that’s most beneficial to you as early as possible. There will be time limits on their availability, so the staggering approach could be risky if you end up missing a crucial window.

Step Six: Prepare Your Hierarchy of Bills

This is one of those ready-yourself-for-the-worst options. 

Right now, you should prepare your hierarchy of bills and decide which get priority if you’re in the position to only pay some of them. 

Basic needs, such as shelter, food, utilities, and transportation, should get priority over making payments on student loans. Shelter is a necessity, but your college degree won’t be taken from you if you fail to pay on your student loans. 

Of course, this is not a long-term solution. This move does have consequences. Delinquency on federal student loans can wreak havoc on your credit or result in your tax refund or even wages being garnished. Private student loan lenders could sue you in an effort to recoup losses. 

Step Seven: Determine Your Safety Net

Millions of Americans are facing hardship right now, so you are not alone. However, this emotional and painful time can make you reluctant to reach out for help. Please consider taking the time to evaluate your family, social, and community safety net. 

If you need to give up your housing to save money, do you have family or loved ones you could move in with? Are there local food banks that could help you save money on groceries so you could redirect this money elsewhere? You can look for local resources on AuntBertha.com and HHS.gov

When in Doubt: Consult an Expert 

You may decide to seek assistance from a debt consolidation or credit counseling service. Please be wary of the significant number of scammers and less than reputable organizations that exist in this space. Generally, it’s best to seek the assistance of a non-profit credit counseling service that could also help you create a debt management plan. Most of the work of debt consolidation can be done yourself by having conversations with your creditors and evaluating potential debt consolidation options like balance transfers or loans (provided your credit still makes you eligible for them).

Bottom Line

It can feel overwhelming to have a lifeline taken away, but being proactive and making a plan now will help reduce some of the pain during the transition.