Student Loan Payments Suspended Due to Coronavirus
- The coronavirus relief package now suspends federal student loan payments through Jan. 31.
- Federal student loan interest rates will remain at 0% during this time.
- The measures apply only to federal student loans and do not affect private loans.
- If passed, the HEROES Act would suspend loan payments through Sept. 2021.
In late March, as college campuses across the country closed in response to the COVID-19 pandemic, the U.S. Department of Education suspended payments and interest on federal student loans. Initially meant to last just 60 days with President Donald Trump's signing of the coronavirus relief bill, the measure was recently extended through January 31, 2021.
This is not the first — or possibly last — time the temporary student loan payment suspension has been extended. Back in August, in light of the ongoing public health crisis and soaring unemployment rates, Trump issued an executive order, which upheld the suspension and 0% loan interest rates through the end of the year.
The most recent change, which was announced by Secretary of Education Betsy DeVos on December 4, gives borrowers another month of financial relief. "The added time also allows Congress to do its job and determine what measures it believes are necessary and appropriate," said DeVos.
As part of the coronavirus relief bill, the student loan forbearance period also suspends wage garnishment and tax refund reduction for anyone who defaulted on their federal student loans. While interest rates will remain at 0%, borrowers still have to opt in to forbearance.
A student with $25,000 in loan debt normally pays about $60 per month in interest. Now, students will pay no interest until at least February 2021.
Credit ratings are not affected by the suspension, and borrowers who want to pay down the principal on their loans may continue doing so at this time.
The federal student loan interest rate is set at 2.75% for the 2020-21 school year, down from last year's 4.53%. A student with $25,000 in loan debt normally pays about $60 per month in interest. Now, students will pay no interest until at least February 2021.
Unfortunately for some students, these measures do not apply to private student loans. About 90% of student debt is federal, meaning the suspended payments will impact the monthly statements of the vast majority of student loan borrowers.
This year, national student loan debt hit $1.7 trillion. The student debt crisis, as well as the larger question of college affordability, has prompted proposals from both ends of the political spectrum. While many Democrats — including President-elect Joe Biden — have suggested sweeping reforms to make college less expensive or even free, the Trump administration has done little to stem the growing crisis.
HEROES Act Would Suspend Student Loan Payments Through Fall 2021
In an effort to amend the coronavirus relief bill and offer further financial assistance to college students, Senate Democrats proposed the $3 trillion Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which has since been reduced to $2.2 trillion.
The HEROES Act would cancel $10,000 in debt for “economically distressed borrowers.”
While less strident than Senator Elizabeth Warren's original campaign promise to erase $50,000 per borrower, or Senator Bernie Sanders' plan to forgive all student loan debt, this proposal aims to cancel $10,000 in debt for "economically distressed borrowers."
A slightly pared-down version of the ambitious bill passed the House of Representatives in October but awaits passage in the Republican-controlled Senate. The bill would extend relief to private loan borrowers and suspend student loan payments through September 2021 — eight months past the current suspension end date.
Furthermore, the HEROES Act would allow adult dependents, many of whom are college students, to receive $500 stimulus checks, which the current coronavirus aid bill doesn't permit.
Next Steps for Student Loan Borrowers
Interest automatically dropped for federal student loans
Interest rates on all federal student loans will remain at 0% until February 1, 2021.
Overdue accounts automatically receive forbearance
If you are more than 30 days past due on student loan payments, you will automatically receive forbearance until February 1, 2021.
Opt in to forbearance for relief from loan payments
All other borrowers must request administrative forbearance for your federal student loan. Contact your loan servicer's customer service for assistance or call 1-800-4-FED-AID.
Guidance for Public Service Loan Forgiveness (PSLF)
According to the Consumer Finance Protection Bureau, suspended payments under federal Direct loans will count toward the 120 on-time payments needed to qualify for loan forgiveness, so long as the borrower continues to meet PSLF eligibility criteria.
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