The federal government is taking steps to help student loan borrowers during the coronavirus pandemic. Under the federal stimulus plan, most student loan payments are suspended until September 30, 2020, with no penalty, and interest won't accrue during this time. A presidential memorandum extended the suspension of federal student loan payments through December 31, 2020, and extends the interest waiver through this date, too.
If this temporary reprieve isn’t enough, you might be able to get a more permanent solution by requesting a deferment or forbearance, changing your repayment plan, or looking into whether you might qualify for loan forgiveness.
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, suspends payments on federal student loans held by the U.S. Department of Education for six months, until September 30, 2020. The president's directive extended this benefit through December 31, 2020.
Neither the CARES Act, nor the memorandum, however, provide for student loan forgiveness. So, the government won't make your student loan payments during this period—it's more like a pause in your repayment period.
The CARES Act, as well as the memorandum, state that interest won't accrue on a loan for which payments were suspended. You also won't be charged late fees or penalties for nonpayment.
Under the CARES Act, the payment suspension and interest reduction were automatic; you didn’t have to request them. The president's memorandum, however, doesn’t specify whether the borrower has to ask for the suspension or interest waiver.
The CARES Act doesn't provide relief for borrowers who have FFEL-program loans or Perkins loans that aren't held by the U.S. Department of Education, nor does it provide any relief for private student loan borrowers. The memorandum doesn’t specify what student loans are covered. But it does state that it is an "extension" of existing CARES protections—not an expansion—so the same limitations on covered loans likely apply.
The CARES Act also stops collection actions, wage garnishments, and Treasury offsets, and prohibits negative credit reporting during the payment suspension. According to a class-action lawsuit, though, tax refund offsets and garnishments are allegedly still happening. The president’s memorandum doesn’t mention a prohibition on student loan debt collection, garnishments, or tax refund offsets. Official guidance from the U.S. Department of Education, once issued, will hopefully address these issues.
Also, some borrowers have taken a hit to their credit as a result of the suspension. So, you should check your credit reports regularly. You can now access your reports on a weekly basis, free of charge, through April 2021 at annualcreditreport.com. If your servicer erroneously reports you as delinquent to the credit reporting bureaus, call your servicer and file a dispute with the agency that made the report.
Payments suspended under the CARES Act will still count as qualifying payments for the purposes of student loan forgiveness programs, including Public Service Loan Forgiveness (PSLF). Keep in mind that if you’re hoping to qualify for the PSLF program, you should complete and submit an Employment Certification Form to the Department of Education annually and whenever you change employers to make sure you’re on track to receive forgiveness. You can also use this tool to get assistance in filling out the required forgiveness forms. Also, borrowers in default will have their six months of suspended payments count towards the nine months needed for loan rehabilitation.
The president’s memorandum doesn’t say whether the suspended payments will count toward public service loan forgiveness or loan rehabilitation.
You can choose to continue to make your payments. Because the interest is set at 0% during this time, the full amount of the payments will go toward paying down the principal that’s due on the loan. So, making payments during the suspension is a good opportunity to reduce your overall student loan balance, if you can afford to keep paying.
If you’re worried about making your federal student loan payments beyond the suspension, consider applying for a deferment or forbearance, changing your repayment plan, or finding out whether you might qualify for loan forgiveness.
With a deferment, your loan payments are postponed for a set period of time—up to three years in the case of an economic hardship. No interest accrues on subsidized loans, including Federal Perkins Loans, Direct Subsidized Loans, Subsidized Federal Stafford Loans, the subsidized portion of Direct Consolidation Loans, and the subsidized portion of FFEL Consolidation Loans.
With a forbearance, your loan payments are postponed or reduced and interest normally continues to accrue. (But interest won’t get tacked on to your loan when the interest waiver is in effect.)
You could also find out if you qualify for another repayment plan that will reduce your monthly payments. Income-driven repayment plans, like the Pay As You Earn Repayment Plan (PAYE), Revised Pay As You Earn Repayment Plan (REPAYE), Income-Contingent Repayment Plan (ICR), and Income-Based Repayment (IBR) Plan, are available for federal student loans. If you’re eligible, your monthly payment is based on 10-20% of your discretionary income, and the remaining balance is forgiven after you make 20-25 years of payments.
While many repayment options are available to federal student loan borrowers, the trick is figuring out which you can choose from and, of those, which is best for your situation. To find out which types of loans qualify for each of the repayment options, and learn about eligibility criteria, see the U.S. Department of Education’s website. To apply for a different repayment plan, go to StudentAid.gov/idr, click on “Apply Now,” and then start the application by clicking on the button next to “Recalculate my monthly payment.” For tips on where to start when selecting a plan, see How to Choose a Student Loan Repayment Plan.
If you’re eligible, you can eliminate your federal student loans through a loan cancellation program, like PSLF or borrower defense to repayment. To qualify for a particular program, you'll have to meet specific criteria, take certain steps, and meet various conditions.
To learn more about repayment options for federal student loans during the coronavirus national emergency, visit the U.S. Department of Education’s Federal Student Aid coronavirus website. You can also call your loan servicer. If you have a Federal Perkins Loan, contact your school.
To get assistance in dealing with your servicer or to get help understanding the different repayment, deferment, forbearance, and forgiveness options for federal student loans, consider consulting with a student loan attorney or debt negotiation attorney.