Fact or Fiction: Debt Relief in the Time of Coronavirus

Truth, they say, is the first casualty of war. And on March 13, President Donald Trump put America on a war footing.

We’re coming for you, coronavirus.

Speaking from the White House Rose Garden and flanked by heavy hitters from Big Pharma and its retailers, Trump declared a national emergency.

We’ll let medical science handle the vaccine/treatment/cure front (Hint: the news is hopeful), and try to help you separate fact from fiction about help in the financial theater (Hint: there might actually be some debt-relief help from politicians/banks/credit card companies).

But first, a word of caution as news changes almost hourly on this topic: The point where facts end and fantasy begins is all a fog right now.  COVID-19’s influence on our politicians may be strong enough to suspend an adage that was formerly invincible — If it sounds too good to be true, it probably is – so be careful to verify everything.

The President and Congress are talking about unprecedented steps to keep the economy afloat. Claims that seemed implausible a week ago (Free money from Washington!) are being reported as fact. Here are a few that you might actually be able to take to the bank:

• Yes, in all likelihood, you will be getting a check from the government in April. Enough to tide you over for a few weeks, not enough to plan a vacation around. Beware of scammers. No one from the federal government – or anywhere else – should be calling and asking for personal information like social security number or current address so you can receive the check.
• Yes, interest will be suspended on your student debt, but you still must make payments. (More about this in a moment.)
• Yes, if you have a government-backed mortgage, or you rent federally subsidized housing, you’re not going to face foreclosure or eviction in the short term for falling behind. You may even be in luck if you’re in a traditional housing situation because some sheriffs around the country are refusing to serve eviction notices.
• Yes, you get another three months to file and pay your taxes with no interest or penalties added. Tax filing day is now July 15.
• There’s more. If you have trouble meeting your utilities payments, the flow of water and electricity is unlikely to stop, according to providers.
• And finally, if you make contact with your credit card issuer, they could be sympathetic to your plea of hardship and grant some kind of concession.

Still, a reminder that it’s possible for incompressible things to be true … just not true in the way you think you heard them. There are stipulations involved and not everyone is going to get a piece of financial candy. So don’t make plans yet, because:

• Maybe you can’t demonstrate financial harm from COVID-19.
• Maybe your company is too large and won’t qualify for the financial bailout.
• Maybe you made too much money last year to get any free money this year.

And maybe you simply misunderstood exactly what the debt-relief was all about. Let’s have a closer look at four areas that generating the most headlines right now.

When Will My Check from the Government Come?

Spearheaded by Treasury Secretary Steven Mnuchin, the White House is seeking a $1 trillion stimulus package. The centerpiece: $1,000 checks to Americans below a certain income level. The administration recommends setting the bar at up to $75,000 for single adults, up to $150,000 for couples.

Senate Majority Leader Mitch McConnell (R-Ky.) sweetened the pot Thursday, proposing direct payments of $1,200 to individuals and $2,400 to couples. Nearby, Sen. Lindsey Graham (R-S.C.) argued against a single check and instead on behalf of an income stream.

There are miles to go, of course, and members of Congress will be sorely tempted to festoon the must-pass package with special-interest sweeteners. But when the wrangling concludes, checks will start going out, possibly as soon as early April.

Said Mnuchin in a St. Patrick’s Day press briefing, “We are looking at sending checks to Americans immediately. … Americans need cash now and the president wants to get cash now. And I mean now, in the next two weeks.”

Money. Free. From Washington. Next month.

Too good to be true? Believe it.

Do I Need to Pay My Credit Card?

Coronavirus is taking a toll on the workplace. Job layoffs have spiked; first time applications for unemployment have soared; service-economy workers who rely on tips and client fees are getting hammered; and investments are in free-fall.

The proverbial silver lining is more like a sliver, but it’s better than nothing: You may be due some credit card payment relief.

As they often do in times of natural disasters, credit card companies have triggered payment-relief programs for the COVID-19 emergency.

Unbidden, Apple contacted customers and invited them to skip their March payment, without penalty or interest. Barclays is allowing payment-skipping, waivers for late fees, finance charge adjustments, even potential credit-line increases.

But you shouldn’t expect all creditors to be like Apple or Barclays. Many banks and card companies have some sort of COVID-19 relief program, but you can’t take advantage without asking for it. Contact your credit card issuer(s) and explain your situation. You may be able to state your case by sending a secure message from the company’s web page; if you’re telephoning, be prepared to wait.

What If I Can’t Pay My Mortgage (or Rent)?

President Trump has ordered the Department of Housing and Urban Development to suspend evictions and foreclosures through April as Americans reel from the coronavirus financial tsunami. Those with FHA-backed mortgages will get some breathing room.

In a separate action, the Federal Housing Financial Agency announced suspensions of foreclosures and evictions for homeowners with Fannie Mae- or Freddie Mac-backed mortgages.

Those not covered by federally sponsored loans have options, too. But to take advantage of them, it’s best to initiate contact with your lender before you fall behind. Many lenders already have put COVID-19 relief programs in place, but — if you’re facing hardships related to the pandemic — the time to ask about them is now.

Renters, meanwhile, should not rely on the generosity of local public officials to keep them in place. Good tenants blessed with reasonable landlords should be able to work out some sort of payment arrangement … but only if they act swiftly. Don’t wait until the rent is late and expect the landlord to be generous.

Can you make a good-faith partial payment, or payments? If not, can you commit to a repayment plan when the crisis passes? These are things to talk over earlier, not later.

While you’re at it, contact the local United Way (211) to see if they are offering aid to renters, or know anyone who is.

What’s This About Forgiving Student Loan Payments?

Isn’t that what the president said? You were going to get a break on your student loan? Well, yes … and no.

What actually happened is the White House waived interest charges on federally held student loans, which is indeed a break. But the move did nothing about the size of monthly payments, which remain the same.

Arguably, nothing needed to be done about lowering payments, because those with student debt already have that ability.

Those with modest salaries can enter into an income-based repayment scheme, in which the debt is considered paid in full after a specified amount of time, even if what’s paid doesn’t match the amount of the loan.

Those hit by severe financial hardship can file for forbearance — a suspension of their payments. Until Trump’s order, student loans in forbearance accrued interest, making it even harder to pay them back.

On the upside, because every dime will go to principal, those able to continue making full regular payments will see their balances shrink faster.

The waiver plan is overrun with nuances, and even the Department of Education seemed to be caught wrong-footed in the early days following the announcement. Borrowers should contact their loan services to find out how they are affected. But all in all, waived interest is a good thing.

Moreover, as Congress wrestles over the details of Coronavirus Stimulus III, arguments on behalf of granting even further student loan relief are coming from the left (mostly) and right.

Meanwhile, colleges and universities that have shut down are deliberating just how much of a break — if any — they can cut for students who are finishing the current semester online and off campus. Housing rebates? Food plan refunds? Breaks on tuition?

Most students and their families shouldn’t count on it. As Robert Kelchen, an associate professor of higher education at Seton Hall University told the Wall Street Journal,  “Many families are losing income now, and may need the money. But colleges need the money, too. They don’t have the kind of operating margin that lets them refund a couple of million dollars in the short term.”

Stay tuned.