How COVID-19 is affecting school loans, financing and the college application process

As a new crop of students graduate from perhaps one of the most untraditional school years on record, they're now preparing to enter yet another year of unusual schooling — this time, in higher education.

It's estimated around 70 percent of American students have taken out loans to pay for college. For those in the process of applying or waiting to hear back about financial aid, the uncertain conditions created by COVID-19 have many wondering, "How will my loan eligibility and financing be affected by the pandemic?"

The short answer? It may be too soon to tell, but not as much as you might think.

As always, what's most important is for students to file their FAFSA (Free Application for Federal Student Aid) and keep in contact with their school's financial aid office.

"Although these are unprecedented times, families should rest assured that financial aid offices are still fully functional. Most importantly and first of all, students must complete the FAFSA to be considered for any federal, state or non-merit institutional funding. For those students still considering enrollment this fall, it's not too late," said Laura Morgan, vice president of communications, savings and legal affairs at College Foundation, Inc. "Once the FAFSA is processed, families should review financial offers to see what financial options are available to help pay for college expenses. Taking advantage of gift aid and/or work-study options should be considered first."

"Another thing that we're trying to tell families and students is that they need to make sure, if there's any type of change in income — if a family has lost a job or started a new one — they need to contact their financial aid department so they can update their FAFSA," Morgan continued. "That may actually make them eligible for more government money, or free money, and if that's the case, that may impact their loan."

College Foundation, Inc. — or CFI — has been helping North Carolina students afford college for more than 20 years, offering financial aid and college planning resources. Recently, the nonprofit has branched out to offer new assistance through N.C. Assist Loan, a private, alternative loan option for in-state students.

While most students will need to take out loans, finding the most affordable options will save money down the road. Subsidized loans — those that do not accrue interest while students are in school — are the most prudent options, but in many cases, subsidized loans alone won't quite cover costs. The N.C. Assist Loan offers competitively low interest rates that rival those of federal options.

N.C. Assist offers two main loan options: a student loan option, with a fixed interest rate of 5.5 percent, and a parent loan option, with a fixed interest rate of 4.75 percent — the latter of which is 2.33 percent lower than the Federal Parent Plus Loan offered by the Department of Education.

When students enroll in automatic draft payments, they can get an additional 0.25 percent interest rate reduction.

"As far as criteria, the N.C. Assist student loan is available to students who are North Carolina residents and students who reside outside of North Carolina but are attending an eligible non-profit Title IV institution in the state," Morgan said. "Similarly, the parent loan is available to parents who are North Carolina residents of students attending any eligible in-state or out-of-state school, or out-of-state parents of students who are attending an eligible school in the state. For both, borrowers are fortunate to have a team of local call center support staff in Raleigh to aid them with their questions."

In addition to N.C. Assist Loan, CFI also offers general information on grants, loans and work-study programs through the College Foundation of North Carolina. In light of the COVID-19 pandemic, Mapping Your Future, a partner of CFI, is working with the Institute of Student Loan Advisors to provide consumers with a single source of guidance on managing student loans, financial aid or college completion.

Another resource, StudentAidPandemic.org launched just a few months ago, provides free, interactive training modules as well as resources and answers to frequently asked questions regarding both college education interrupted by the virus and the relief available to student loan borrowers.

While the college application and loan process haven't altered much due to COVID-19, the loan repayment process has seen some major changes. The recent passing of the CARES Act offers some relief of payments, namely through a significant decrease in interest.

"Federal loans already taken by students and included in the CARES Act are eligible for zero percent interest. The interest, which would typically accrue on the federally-owned loans during the provision period, will be covered by the federal government as part of the $2.2 trillion relief package," Morgan explained. "If a borrower has been affected in any way by the coronavirus outbreak, there are options available to help. Students or parents may qualify for a deferment of payments based on your circumstances, such as unemployment or economic hardship — they would just need to contact their loan servicer."

For those preparing to enter college or graduate school, the long-term effects of COVID-19 on the loan and financing process are hard to predict, but the team at CFI sees it perhaps increasing the number of competitive, low-interest loans like those offered by N.C. Assist. Additionally, borrowers may see more flexible options for repayment, similar to those offered by the CARES Act.

"While the CARES Act only offers the current administrative forbearances and zero percent interest rate though September, we may see other leniencies offered by the federal government and possibly private lenders — like interest rate reduction for automatic draft in loan repayment, interest rate reduction on origination, extended forbearances due to financial hardships because of loss of job or furlough or consolidation changes," Morgan said.

She added, "Either way, loan availability from either source — federal or private — will not be exhausted. Perhaps, as never before, loans may be the only option for families to meet the gap of the cost of attendance and financial aid because of the financial hardships households across America have faced."