Federal student loans suspended for 6 months – should you still pay?
Federal student loan borrowers will have their payments automatically suspended – without incurring interest – for six months, according to a measure included in the federal stimulus package released last month. This policy applies only to federal loans, not to private student loans.
This option, called abstention, will continue until September 30. You will be informed of the option to continue making payments to the principal. Contact your repairer if you have any further questions.
Make no mistake: this is a break from payments, not forgiveness. Your debt will be waiting for you when repayment begins at the end of the six-month forbearance, unless the policy changes.
And politics may well change. The measures were taken as part of the federal stimulus bill in response to the economic fallout from the spread of the coronavirus and COVID-19, the disease it causes. Neither the epidemic nor its economic impact is showing signs of slowing down, and some lawmakers have proposed more dramatic measures.
“I think there are going to be additional waves of relief, depending on how this pandemic progresses,” said Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.
In the meantime, here’s how to decide what to do next.
If you want to suspend payments
You don’t have to do anything to get forborne from stopping student loan payments for six months, which begin in April. You can call your manager to request an abstention before this date, which would be retroactive to March 13. Interest will not continue to accumulate, as it normally would.
A abstention may give you leeway to deal with other financial issues.
If you are unemployed or working reduced hours, an abstention can free up money to pay rent and utilities or grocery bills. Even if your salary is not affected, a forbearance could help you divert money to building an emergency fund or help you pay off other, more urgent debt.
Usually forbearance is given at the discretion of the Servicer and interest will continue to grow. In this case, the Department of Education has instructed all placement officers to automatically place all loans into six month forbearance, and due to the waiver, no interest will increase.
If you’re behind on your student loan payments (or late)
Payments are automatically suspended for all borrowers, including those who are more than 31 days late by March 13 and those who become more than 31 days late in the next few days. This means that the loans are forborne and will not default.
Defaulting on federal loans occurs when a payment is 270 days past due, sending your loan to collections and exposing you to damaged credit, foreclosed wages, and foreclosed tax refunds.
For borrowers in loan recovery, each month of the forbearance period would also be taken into account for the recovery.
For those with past due federal student loans, all collection activities are suspended. You can get a refund for any forced student loan payments made since March 13. If your tax refund was entered before March 13, it will not be refunded.
If your loans are already forborne, any interest 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 looking for a civil service loan remission
Tolerance will not negate your progress towards Public service loan remission, or PSLF. During automatic forbearance, as long as you are still working with an eligible employer, those six months will count towards the PSLF.
Making payments during the forbearance period will not advance you on the payments. You are in the same boat whether you pay or not.
Under normal circumstances, only full payments count. You also won’t lose credit for payments you’ve already made.
If you want to continue making payments
Borrowers might want to continue paying off federal loans if they want to pay off their debt faster.
The stimulus bill stipulates that borrowers will have the option of continuing to pay the principal, but otherwise all loans will be placed on hold.
If you continue to make payments, you will not pay any new interest on your loans for six months, retroactive to President Donald Trump’s initial March 13 announcement temporarily suspending interest on student loans. That 0% interest rate will save you money overall, even if your payment won’t be lower.
The full amount of your payment will be applied to your loan principal balance after all interest accrued before the President’s announcement has been paid.
Contact your loan manager with any questions regarding the continuation or resumption of payments during the forbearance period.
If your income has changed
If you see a change in income and still want to keep paying, the best way to reduce your payment to something more affordable is to request an income-based refund. You will receive a new payment based on your family size and a percentage of your discretionary income, and it will be in effect even after the stimulus relief expires. You can apply online at Studentaid.gov.
How to work with your repairman
If you want to restart payments during automatic forbearance, contact your student loan manager – the private company handles the 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 services.
“These are unprecedented moments, and I can assure you that the repairers did not have much notice,” explains Mayotte.
To know which loan manager is yours, log into studentaid.gov with your FSA ID.
You can get in touch with any loan service contact center by calling 1-800-4-FED-AID.