One of the major concerns of the December 2020 stimulus bill was that federal student loan forbearance was not slated to be extended. Many Americans, some of whom are out of work, still have federal student loan balances and some were concerned that they would be unable to make payments toward those loans.
Luckily for these Americans, President Biden has agreed to extend student loan forbearance until September 30, 2021. The Education Department agreed to this action on January 20, President Biden’s first day in office. This policy affects 41 million Americans who have outstanding federal student loan balances, either for themselves or for their children.
So what is this student loan forbearance, what loans does it affect, and what can borrowers do in the meantime?
What Is Student Loan Forbearance?
Since the CARES Act was signed into law in March 2020, federal student loans have been put into a state of forbearance. Forbearance means that payment obligations have been deferred to a later date. Essentially, it means that borrowers do not have to make the otherwise-scheduled payments toward their federal student loan debt.
This forbearance is different than most other types of student loan forbearance, as student loan interest will not accrue during the forbearance period. This means that you will not have a larger balance than what you started with. Not only that, but federal student loans that are in default will not be collected.
Why Did Federal Student Loans Go Into Forbearance?
The CARES Act (March 2020) signed into law by then-President Donald Trump was introduced to allocate spending and debt relief for American citizens during the COVID-19 pandemic. Originally, loans were supposed to remain in forbearance for six months; however the forbearance period was extended twice. The first extension lasted until January 31, 2021, and the second extension will last until September 30, 2021.
This student loan forbearance extension was agreed upon by President Biden and the US Education Department in order to provide relief to people who are still out of work. Since the pandemic and the subsequent lockdowns have lasted all throughout 2020 and threaten to continue well into 2021, the Biden administration wanted to make sure that those who were still out of work are able to afford basic necessities.
Which Loans Count for Forbearance?
Federal student loans, which includes both subsidized and unsubsidized loans as well as Direct PLUS loans (including Parent PLUS and Grad PLUS) are all eligible for the forbearance period.
Student loans provided by a lender that is not the US Federal Government will not be eligible for this forbearance period. These loans have been continuing to accrue interest and payments have continued to be due. This will not change with the extension of the federal student loan forbearance period.
What To Do About Private Student Loans
Just as in the original moratorium on student loan payments and interest, student loans issued by private lenders such as Sallie Mae do not qualify for this type of forbearance. Private student loan borrowers are still responsible for their private loan payments.
However, many private student loan borrowers are having just as much trouble affording their payments due to being out of work or having their income reduced as a result of the pandemic.
If you are having trouble paying down your private student loans, you have options available to you. Call your lender or visit your lender’s website to see what options are available. Whatever you do, do NOT miss a payment on purpose and do NOT default on your loan if at all possible!
Here are some potential options you may have:
Negotiate lower payments
You may be able to temporarily arrange lower payments during the pandemic if you’re unable to afford your normal payment amount. Lenders would rather get something than nothing, and they’re usually more than happy to assist you.
Some student loan providers offer income-based repayment plans, which are usually temporary. This is not the same as the FSA’s income-driven repayment plans.
Private student loan providers offer temporary forbearance which can be used in case you are unable to make the payments on your student loans. These providers have made arrangements with borrowers who are affected by the pandemic.
However, there may be limits to how long you can keep your loans in forbearance. Make sure to ask your student loan provider about the forbearance terms.
Consolidation or refinancing for a lower payment
Some private lenders offer loan consolidation, however if you do want to consolidate your private student loans, you may want to shop around for the best rate. SoFi Financial, LendKey, and Splash Financial are examples of lenders that specialize in consolidating and refinancing private student loans.
Should I Pay Down My Federal Student Loan Debt In The Meantime?
The answer is yes, but only if you can afford to do so. This reprieve is for student loan borrowers who are having trouble allocating funds toward normal expenses. Borrowers who are no longer responsible for student loan payments no longer have to worry about making payments until October, and can use whatever funds they have toward their necessary expenses.
On the other hand, if you can afford to pay down your federal student loan debt during this time, you absolutely should! During the forbearance period, your student loan debt will not be accruing interest and payments made will count toward the principal. For those who are not out of work, this is a good time to catch up on paying down that debt.
Is it Advisable to Pay Off Collection Items?
The majority of consumers appear to believe that if they pay off collections, their credit scores will improve and become better. A shocking truth has emerged: this is not actually the case. Just so you’re aware, negative items can remain on your credit reports for a maximum of seven years, and your credit score will only begin to improve once the negative item has been removed.
What are Collection Accounts and How Do They Work?
Collection accounts are entries on a credit report that indicate that a debtor has fallen behind on previous obligations. Original creditors may have sold the defaulted debts to a debt buyer or may have assigned the debts to collection agencies after the default occurred. It should come as no surprise that the collector’s ultimate goal is to work on the client’s behalf in order to have the defaulted debt collected from the debtor or as much of it as possible.
The majority of the time, these collection accounts are reported to credit reporting agencies. According to the FCRA, or Fair Credit Reporting Act, these are permitted to remain on credit reports for up to seven years from the date of the initial debt’s first delinquency.
The Consequences of Paying Off Collections on Your Credit Score
The ramifications of completely paying off collection accounts will not disappear in an instant, however. You will still need to wait until the statute of limitations has expired before this information can be removed from your credit report. As previously stated, this will typically take approximately seven years. Fortunately, information from the past will have a smaller impact on your credit score.
Despite the fact that paying off collections will not improve your credit score, there are several ways in which you can take advantage of this situation:
Credit card or medical bills can result in debt collection lawsuits, which you can avoid if you take the proper steps.
As a result, you will be able to avoid paying interest fees to debt collectors. A debt collector is constantly selling and buying accounts, and he or she may continue to charge you fees and interest on the accounts that have been purchased.
In the event of a settlement or payment in full, the credit report will reflect this. When it comes to lenders, it can have a positive impact because they are likely looking beyond your credit score and instead of looking at your credit history and other factors. Comparing those who successfully repay an extremely past due account to those who never managed to do so, the former will demonstrate greater financial responsibility.
You will eventually be able to benefit from the most recent FICO Score model. Despite the fact that the FICO 9 is still in the early stages of implementation, the vast majority of lenders will eventually adopt it. Medical bills will be given less weight in this model, and paid accounts will be completely ignored when it comes to collections.
According to the law, the majority of negative credit information, such as collections, should be removed from credit reports over time. The fact remains that attempting to settle or pay off your debt as quickly as possible will be in your best interests. Not to mention the fact that, in contrast to older models, the newer models for credit scoring do not take into consideration collections with zero balances. If you don’t think you’ll be able to handle it on your own, you can always enlist the assistance of professionals who can simplify the entire process for you.
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How Bad is an Eviction and How Long Does it Stay on Your Credit?
Every time someone mentions a record during an eviction, what they are really referring to is a background check as well as your credit report and history. In general, an eviction will appear on your credit report for up to seven years.
That is correct; you read that correctly. It will be there not for 7 months, but for as long as 7 years, according to some estimates. Eviction is, therefore, a major issue in this community, and it is treated as such. Landlords, in particular, are wary of renting to tenants who have a history of evictions on their records. If you are ever evicted, this fact will follow you wherever you go for the next seven years, no matter how hard you try to forget it.
For landlords to know that you have been evicted in the past, there are two ways to find out.
If the reason for your eviction was non-payment of rent, your landlord may have forwarded this account to a collection agency, which will then appear on your credit report as a result of your actions.
When the courts were involved in your eviction, the case judgment is considered public record, and landlords who use tenant-screening services will be able to see this information if they conduct a background check on the tenant in question.
Is it possible to have an eviction removed from your credit report?
Anything that is accurate on your credit report will remain on your report for seven years. If there is ever a mistake, you will have the opportunity to contest the decision.
This error will be removed from your credit report if you can provide proof to the credit reporting agency that a mistake was made. If you were successful after being served with an eviction notice, you should provide proof of your victory to the reporting agency. There are landlords who will attempt to evict people even if they do not have a legitimate or acceptable reason to do so.
How Can You Find a Place to Rent if You Have an Eviction on Your Credit Report?
It is important to understand that just because you have an eviction on your credit report does not necessarily mean that you will be unable to rent for the next seven years. However, even though your report contains an eviction, there are still several options available to you for finding a place to live in the meantime.
Take the initiative.
Inform the property manager or landlord of your intention to evict them prior to submitting your application and explain your circumstances to them. Even if the eviction took place years ago and you have maintained a good tenant record since then, there is a chance that the landlord will rent to you again.
Look for someone who will sign on as a cosigner for you.
It is possible for you to obtain a rental unit if you have a co-signer who has good credit and can vouch for you. Your parent or another person with good credit can serve as your co-signer. If, on the other hand, a payment is not made on time, your landlord has the right to and will almost certainly ask for the money from your cosigner.
Pay in advance if possible.
A high probability of obtaining a rental unit exists if the landlord recognizes your willingness to pay the rental value in full upfront for a period of 3 to 6 months.
What’s the bottom line?
It is preferable to avoid being evicted in the first place if you want to avoid having any eviction information on your credit report.
Why did House Prices Go Up in 2020 During the Pandemic
The pandemic brought with it a lot of surprises, one of them being the rise in house prices. The US economy plummeted with millions of Americans finding themselves out of work and without food. No one would have predicted that at the time when times were hard for everyone, home prices would become overheated, mortgage rates would skyrocket, and the supply for houses would not meet the demands and consumer confidence in the housing market was reducing. The housing market was booming.
Right at the beginning of the pandemic, no one was willing to buy a house or even sell one. This was because of the uncertainties of the time brought about by Covid-19. In a span of a few months, most day-to-day activities were confined to the available properties. Houses became a key asset and prices began to rise.
The US real estate market in context
The American real estate market suffered a huge blow as a result of the 2008 financial crisis. The recession saw the prices of houses fall by a big margin and the world’s largest real estate market was affected in ways no one would have imagined. This was as a result of subprime mortgages that were given in large numbers to help as many Americans as possible to become homeowners. Homeowners found themselves mortgages that were higher than the value of their houses. By 2013, the market was showing signs of recovery. From 2018 to 2019, the market began to fall slightly.
For many Americans, owning a home is very important to them as it allows them to build up their wealth, make it easy for them to access credit, and be able to save more as they no longer have to pay rent. A large percentage of homeowners rely on mortgages to acquire homes after raising the down payment from their savings or with money from their families. It was expected that the pandemic would lead to foreclosures especially since the economy took a downward spiral at the start of the pandemic. Many people also lost their source of income and were unable to keep up with their mortgage payments.
The most expensive real estate in the USA is found in San Francisco, California. San Francisco has a booming economy fueled by the presence of tech companies like Apple, Facebook, Intel, and Tesla that have their headquarters in the nearby Silicon Valley. The city also has been at the forefront in matters progressive culture which attracts more people to relocate to it. As a result of the thriving tech economy that brings billions of dollars into the city, and rising housing demand, the city is the most expensive place to buy a house in the US. On average, the price per square foot is $1,100.
Why do house prices go up in general?
The value of a house is usually expected to depend on the demand for living in a particular area, but things like recessions and pandemics are known to have an impact that can either be positive or negative. House prices go up when the supply does not meet the demand. One of the key factors that affect the supply has to do with the regulations that restrict the number of housing units that can be built. For example in a single-family zone, it’s illegal to build townhouses or apartments, or condos on any spaces designated for single units and parking minimums must be met. This forces contractors to make provisions for parking spaces even in places where it’s unwarranted.
Some local governments allow groups of people to block developments they feel will have a negative impact on the overall value of the entire estate. These local zoning regulations are making it impossible for most Americans to move to better estates due to the shortage of housing.
Why did house prices go up during the pandemic?
The price for houses is determined by the existing demand and supply dynamics. The fewer the number of houses available, the higher the prices for the available units would be. If the number of buyers is fewer, then the house prices would be lower. The prices went up because the pandemic affected both supply and demand. A lot of people were in a rush to take advantage of the falling mortgage rates which made it easier to acquire homes at a cheaper price.
As a result of the falling mortgage rates, houses were not staying on the market for long. Among those who bought the homes were first-time homebuyers or those who were buying a second home. These put a lot of pressure on the market as were not putting another home on the market as they took one out of it. In some instances, others chose to refinance their mortgages based on the lower rates instead of acquiring a new home.
Because of the pandemic, people who had plans of listing their homes did not do so and those who had listed their homes took them off the market. As a result of the social distancing rules at the height of the pandemic, not many people were willing to show their houses.
Home developers did not anticipate a surge in the demand for housing during the pandemic. A number of them had let go of their employees and had shut down. At the same time, prices for materials like lumber also added to the construction costs alongside the scarcity of skilled workers.
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