Payments are currently suspended, without interest, for federal student loan borrowers until Dec. 31. Originally, a six-month suspension was announced in mid-March as part of a measure included in the coronavirus relief package. It was extended until the end of the year by an executive order. This policy applies only to federal loans, not to private student loans.
Borrowers can still make payments to lower their debt during this period of suspended payments, called a forbearance. Contact your servicer if you have further questions.
Make no mistake: This is a pause on payments, not forgiveness. Your debt will be waiting for you when repayment begins at the end of the forbearance, unless the policy changes.
And the policy could well change. The measures were made as part of the federal stimulus bill in response to the economic fallout related to the spread of coronavirus, and COVID-19, the illness it causes. The forbearance was then extended by President Donald Trump in early August. Neither the outbreak nor its economic impact shows signs of slowing, and some lawmakers have proposed more dramatic measures.
“I do think there’s going to be additional waves of relief, depending on how this pandemic plays out,” says Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.
Until then, here’s how to decide what to do next.
If you want to pause payments
You don’t have to do anything to get a forbearance to stop student loan payments. Interest won’t continue to accrue, as it normally would.
A forbearance could give you breathing room to address other financial concerns.
If you are jobless or working reduced hours, a forbearance may free up cash to pay the rent and utilities or grocery bills. Even if your pay is unaffected, a forbearance could help you divert some money toward building an emergency fund or help you pay another, more pressing debt.
Usually forbearance is granted at the discretion of the servicer and interest will continue to build. In this case, the Education Department instructed all servicers to automatically place all loans into a forbearance without interest.
If you’re behind on your student loan payments (or get behind)
Payments are automatically suspended for all borrowers, including those who are more than 31 days delinquent prior to March 13 and those who become more than 31 days delinquent in the coming days. That means the loans are placed in forbearance and won’t default.
Default on federal loans happens when a payment is 270 days past due, sending your loan to collections and exposing you to damaged credit, garnished wages and seized tax refunds.
For borrowers in loan rehabilitation, each month of the original forbearance period from March 13 to Sept. 30 would also count toward rehabilitation. It’s unclear if this will be the case for the extended forbearance.
For those with federal student loans in default, all collection activities are suspended through Sept. 30. You can get a refund for any forced student loan payments made since March 13. If your tax refund was seized before March 13, it will not be returned.
If your loans are already in forbearance, any interest that already accrued will still be added to your loan principal when your repayment begins, but during the six-month waiver no new interest will be calculated.
If you are seeking Public Service Loan Forgiveness
The original six-month automatic forbearance won’t undo your progress toward Public Service Loan Forgiveness, or PSLF. As long as you are still working with a qualifying employer, those six months from March through September will count toward PSLF.
It’s unclear if nonpayments during the extended forbearance through the end of the year will also count toward PSLF.
Making payments during the six-month forbearance won’t get you ahead on payments. You’re in the same boat whether you pay or not.
Under normal circumstances only full payments count. You also won’t lose credit for the payments you already made. Expect to make payments for October, November and December if you want those months to count.
If you want to continue making payments
Borrowers might want to continue making payments on federal loans if they want to pay down their debt faster.
The stimulus bill states that borrowers will be given the option to continue making payments toward the principal, but otherwise all loans will be placed in forbearance.
If you do continue making payments, you won’t pay any new interest on your loans during the forbearance. This 0% interest rate will save you money overall, even though your payment won’t be lower.
The full amount of your payment will be applied to the principal balance of your loan once all interest accrued prior to March 13 is paid.
Deciding whether or not to make a payment during this time will depend on your original repayment strategy:
- Those sticking to a standard repayment timeline (typically 10 years) could consider making payments. You likely won’t have much outstanding interest and additional payments can help you chip away at your principal during the break.
- Borrowers enrolled in income-driven repayment or planning to do so shouldn’t bother making payments now if the ultimate plan is to pay until the loans are forgiven — usually 20 or 25 years. If you want to pay off your loans sooner, then paying now could help you lower the total interest you owe on top of your principal.
- Borrowers seeking Public Service Loan Forgiveness should consider making payments after Sept. 30 if they want those months to count toward forgiveness.
Contact your loan servicer with any questions about continuing or restarting payments during the forbearance period.
If your income has changed
If you experience a change in income and still want to keep your payments going, the best way to lower your payment to something more affordable is to apply for income-driven repayment. You’ll get a new payment that is based on your family size and a percentage of discretionary income, and it will be in effect even after the stimulus relief has expired. You can apply online at studentaid.gov.
If you are already enrolled in an income-driven plan, make sure to recertify your income annually or if it has changed due to the economic downturn.
If you have FFEL Loans
If you have Federal Family Education Loans (FFEL), you are entitled to receive the no-interest forbearance only if the government owns the loans. This won’t be most FFEL borrowers — most of the loans from the now-defunct program are commercially held.
You can find out who owns your loans by logging in to studentaid.gov using your FSA ID.
The only way to get the forbearance for commercially held FFEL loans is to consolidate your debt into a new direct loan. But there are downsides to consolidation:
- Your repayment term will be extended.
- Your interest rate will increase slightly.
- Any unpaid interest will capitalize and be added to the total amount you owe.
Six months of interest-free payments may not be worth those additional long-term costs.
Plus, if you’re already making payments on an income based repayment (IBR) plan, those previous payments will no longer count toward forgiveness. You’ll have to start all over.
Consolidation can make sense if you have FFEL loans and want to qualify for Public Service Loan Forgiveness. Otherwise, stick with your current loans.
If you’ve experienced a change in income, you can enroll in IBR or recertify early, if you’re already on this plan. IBR will still take into account your spouse’s income. Your loans are also eligible for unemployment deferment, which may make sense if you’ve lost your job but expect to start working again soon.
How to work with your servicer
If you want to restart payments during the automatic forbearance, contact your student loan servicer — it’s the private company that manages payment of your federal loans. But you don’t have to do anything to get the forbearance or the 0% interest rate.
Mayotte encourages borrowers to be patient with their servicers.
“These are unprecedented times, and I can assure you the servicers did not have a lot of notice,” says Mayotte.
To find out which loan servicer is yours, log in to studentaid.gov with your FSA ID.
You can get in touch with all of the loan servicer contact centers by calling 1-800-4-FED-AID.
For additional information visit studentaid.gov/coronavirus for forthcoming details.