Updated to reflect extension of relief through January 31st, 2022. This article is a quick reminder of the temporary relief initiatives and how you might be able to participate if you have FFEL loans.
How are borrowers being given temporary student loan relief?
All of the below items only apply to federal student loans owned by the Department of Education, that includes all Direct Loans, but not many FFEL or Perkins loans. If you have private student loans and are struggling to make payments, contact your servicer.
- Pauses in interest accrual will continue, that means 0% interest on eligible federal loans through January.
- Payments for eligible federal student loans will remain suspended, that means 22 months total of no required payments.
- The Department of Education will consider each month during this period of suspended payments as an eligible month toward loan forgiveness.
- Suspended payments are treated as a satisfied monthly payment for credit reporting purposes.
- Involuntary collections on defaulted loans will be stopped during the period of suspended payments.
What if my federal student loans haven’t qualified?
If you have federal student loans like FFEL loans or Perkins loans that haven’t qualified for these relief measures you can consider consolidating them to a Direct Consolidation Loan in order to transfer ownership to the Department of Education. Once you have Direct Loans your loans will be eligible for the benefits listed above.
A few things to consider before consolidating:
- Consolidation of Perkins loans removes any cancellation benefits you may have been eligible for under that program.
- Consolidation of FFEL loans will reset the payment clock on any payments made toward income-driven loan forgiveness. If you’re on an income-driven repayment plan, planning to have your remaining balance forgiven after 20-25 years, and have already made years of payments don’t consolidate.
What should I do if my federal student loans are in default?
- Rehabilitation and consolidation are the two options for getting your federal student loans out of default. You can read more about how to get your student loans out of default.
- Once you’ve entered into a rehabilitation agreement you will need to make nine months of on time payments. The temporary relief pauses your Direct Loan payments through January 31st, 2022. That means after you initiate rehabilitation you can satisfy monthly payments without having to pay.
- The interest rate on Direct Loans is 0% so consider making payments if your situation allows it.
- Wage garnishments will remain paused until October 2021. If you’ve had wages garnished from 3/13/20 – 9/30/21 reach out to your servicer so they can contact your employer to stop. You are also entitled to receive a refund of any involuntary collections made after 3/13/2020 from the Department of Education.
I’m working toward loan forgiveness.
- You don’t have to make any monthly payments through January 31st, 2022.
- All the months of non-payment during the temporary pause will count toward the required number of payments. So if you’re pursuing Public Service Loan Forgiveness (PSLF) or Income-Driven Loan Forgiveness (IDLF) you made 22 payments during this period of relief (March 2020 -January 2022).
- Making payments on loans that are eligible for PSLF doesn’t make sense because you can’t pay ahead or have loans forgiven sooner. So consider using that monthly payment to boost your savings or retirement accounts if you can.
I’m still struggling financially and need the relief.
Take advantage of not having to make payments to your federal student loans through January 31st, 2022. Department of Education owned loans aren’t accruing interest right now so although your loan balance won’t be going down, it also shouldn’t be increasing.
You will also want to think ahead to when the temporary pause will end. Your best bet is to enroll in an income-driven repayment plan. Income-driven payment plans can be as low as $0/month depending on your income so can be a good option for maintaining good credit and avoiding delinquency and default.
I want to pay my loans off ASAP.
As long as you’re not pursuing loan forgiveness and your financial position is strong, making payments now can help you pay off your loans even faster. A 0% interest rate on Department of Education owned loans means your payments will be going to principal and paying down your balance even faster. One thing to watch out for is refinancing; you can’t beat 0% on federal loans. You can consider refinancing any federal student loans after the temporary relief expires in January. This relief doesn’t apply to private loans so you can look into refinancing private loans now.