These are are crazy times in which we're living. First off, I hope that everyone reading this is in good health, and that the same is true for your loved ones. It is our goal to make sure that we give you high-level updates on what's going on financially during these times, so that you can focus on what's important as best as you can. Here are a few updates on the recent comings and goings as it relates to coronavirus and your finances.
Who gets a check?
You've probably heard that individuals will get $1,200 with an additional $500 per child. In order to qualify, individuals must have an adjusted gross income (a number found on your tax return) of below $75,000. For individuals earning over $75,000, your check will be reduced by $5 for every $100 you make over the limit, while those earning over $99,000 will not receive a check. For couples, the requirement is doubled ($150,000 adjusted gross income threshold). Your adjusted gross income is typically less than your salary, so I would not assume that you won't get a check simply because your salary is over the limit. But I would make sure to file your tax return for the year, even if you're a new graduate who didn't have any income in 2019. Why? Because the stimulus check will be available for the entire year, meaning that you'll be counted and start the process of receiving your check once your tax return is on file.
- Private-owned federal loans: this sounds like an odd distinction, but you can have federal student loans that are not owned by the federal government. Prior to 2010, the government offered loans from the FFEL program (e.g. Perkins loans, Stafford loans) that are likely owned by a private lender.Those loans have unfortunately not been impacted in a positive way by the federal stimulus; in fact,they haven't been impacted at all. Your payments will continue and interest will accrue on your loans as well. If you've been laid off or lost income, you CAN ask your loan servicer to recertify your income and lower or even eliminate your payment for the time being, however interest will still be accruing on your loans. If you'd like to position yourself to take advantage of the stimulus offer of no payments and no interest for 6 months, you can also consolidate your loans into a new Direct Consolidation loan, which is eligible for the offering. Be careful though; when you consolidate your loans you create a new loan, meaning any payment credits you've received towards having your loans forgiven under the income-driven payment plans such as IBR would be wiped away. Consolidating your loans would also cause your loan interest to capitalize and be added onto your loan balance.
- Federally-owned loans: if you have a loan taken out after 2010, or have consolidated your loans, it's likely that you have newer Direct loans that have been the subject of the federal stimulus package. If you have federally-owned loans, you will not have to make any payments and no interest will accrue on the loans until at least September 30th, 2020. Even better, you will receive credit towards any forgiveness programs during the 6 months of no payments, such as the 10-year Public Service Loan Forgiveness, or the 20/25 year payment plans under IBR, REPAYE and PAYE. It is an automatic pause retroactive to March 13th, meaning any payments you made after that date will eventually be refunded. You do NOT have to place your loans into forbearment, and it's important to know that if your loans are currently in forbearance, you WON'T receive the 6 months' credit towards forgiveness. Does that mean that you need to request that you be taken out of forbearance in order to get credit? Not necessarily; when you exit forbearance, any unpaid interest on your loans will automatically capitalize. Something to keep in mind before you pull the trigger.
- Private loans: you might not be aware of this, but there are more than a few private student loan companies who offer loan forbearance in the event of a financial or medical hardship. While the length of time varies with each lender, those who offer forbearance typically do so in 90-day increments, up to a maximum of 12 to 24 months over the course of your loan repayment period. Some go a step further and will help you fine-tune your resume, establish a job search strategy and even help place you with companies looking for contractors. If you have private student loans and have been laid off or lost a significant amount of your income, contact your lender to see what programs they have available.
- Student loans in default: we've covered defaulted student loans in the past, and having loans in default is a huge, terrible ordeal. The good thing is that as a part of this package, defaulted borrowers whose wages and/or taxes are being garnished will also get a 6-month reprieve. Most important though, is the impact on what's called loan rehabilitation. To make a long story short, loan rehabiliation is a process where defaulted borrowers can make 9 months of loan payments and have their loans removed from default. This step not only removes the default from your credit report and potentially knocks off some or all of the collection fees added to defaulted loans, but it also restores eligiblity for programs such as Public Service Loan Forgiveness. The federal stimulus package will give defaulted borrowers in the loan rehabilitation credit for paying over the next 6 months, even though no money will be exchanged. This means that if you started the program today, you'd only have to make 3 of the 9 monthly payments to have your loans rehabilitated. So if your loans ARE in default and you HAVEN'T signed up for loan rehabilitation, you need to do so immediately.
- Federal-backed loans: if you have a federally-backed home loan, such as an FHA loan, the Department of Housing and Urban Development has directed lenders to offer borrowers in need the option to defer their payments for up to a year if necessary. Typically when this type of offer is made, borrowers are required to make a lump-sum payment at the end of the period. But the HUD has also extended an option for a partial claim to make sure that borrowers are not required to pay the lump sum; a partial claim would essentially mean that when your lender requires the payment, the government would give you an interest-free loan, and they would add the loan onto the back end of your mortgage. For example, if you owed $12,000 in a lump sum at the end of the year, the partial claim would give you $12,000 to make the payments now, but add $12,000 onto your loan balance at 0%.
- Private loans: if you have private loans, while there is no formal government plan to help with payments, you do want to ask your lender for relief if you've been adversely impacted due to coronavirus. Many lenders are offering the option to defer payments for up to 90 days at a time, althought it's important to keep in mind that it's likely a lump sum amount would be due at the end of the period. If you cannot make your payments, do not avoid your lender's calls or risk having a late payment show up on your credit report; assume they will work with you and communicate your status to them. If anything, local, state and federal representatives are encouraging borrowers to expose lenders who are refusing to work with their customers, even encouraging them to report said companies to the Consumer Financial Protection Bureau.
Small business owners
The government allocated $350 billion towards loans to small business owners through the CARES Act. The loans will be offered by banks and lenders who are approved lenders through SBA loan office. In order to qualify as a small business, the following must be true:
- A small business with fewer than 500 employees
• A small business that otherwise meets the SBA’s size standard
• A 501(c)(3) with fewer than 500 employees
• An individual who operates as a sole proprietor
• An individual who operates as an independent contractor
• An individual who is self-employed who regularly carries on any trade or business
• A Tribal business concern that meets the SBA size standard
• A 501(c)(19) Veterans Organization that meets the SBA size standard
There are some special rules that allow food-service businesses to qualify even if they have more than 500 employees, but that's basically it. The premise of the program is that businesses can receive a loan of up to 2.5x their average monthly payroll, up to a cap of $10 million. The loans are designed to help business owners maintain payroll and cover costs such as lease and mortgage payments for an 8-week period. If you maintain a certain percentage of your payroll over the 8 weeks, then the loan would be forgivable (i.e., it wouldn't have to be repaid). If your payroll drops by a certain percentage during the 8 weeks, then portions of the loan could lose their forgivable status and actually have to be paid back. There are also a number of exclusions for what the funds can be used for - for example, the funds can't be used to pay employees/contractors earning over $100,000 - so for more details on the program, you can head to the US Chamber of Commerce coronavirus website for more details.
If you have been laid-off, furloughed (meaning the plan is for you to be brought back at your original position), or even suffered a significant decrease in pay or hours, you may be eligible to file for unemployment. The federal stimulus package entitles eligible citizens to an additional $600/week in benefits, but employees of smaller-businesses should make sure they communicate with their former employer regarding their unemployment filing. Why? The unemployment office is going to notify that a claim has been filed by a former employee, and they will offer the business owner(s) the opportunity to dispute the claim for a certain period of time. Letting the former employer know in advance that you're filing a claim could help speed up the process, and is also important if they plan to hire you back; if you file for unemployment and don't either let the state know you plan to be rehired or give them a tentative rehire date, you could be required to prove you're looking for new jobs in order to continue receiving benefits.
Wishing you all good health, and here's hoping that better times are right around the corner.