- The coronavirus relief package now suspends federal student loan payments through Sept. 30.
- 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 provide relief to federal and private student loan borrowers.
Last March, as college campuses across the country closed in response to the COVID-19 pandemic, the Department of Education suspended payments and interest on federal student loans. Initially meant to last just 60 days with former President Donald Trump's signing of the coronavirus relief bill, the measure was recently extended through September 30, 2021, at the request of President Joe Biden.
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 2020. The suspension was then extended another month through January 31, 2021.
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The most recent change, which was announced by the Department of Education on January 21, gives borrowers an additional eight months of financial relief.
"Borrowers of all ages are often faced with a tough tradeoff between making their student loan payments, investing in their long-term financial future, or paying their bills. The pandemic has only increased the economic hardship of the millions of Americans who have student debt," said Biden in a statement.
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 October.
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 October.
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.
In 2020, 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 Biden — have suggested sweeping reforms to make college less expensive or even free, the Trump administration did little to stem the growing crisis.
HEROES Act Would Provide Student Loan Relief
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 Senate. If passed, the bill would extend relief to private loan borrowers.
The HEROES Act is unlikely to garner much support among Republicans. Mitch McConnell referred to the bill as "an unserious product from an unserious majority." Meanwhile, Biden recently reaffirmed his commitment in supporting $10,000 in forgiveness, keeping hope alive for some type of federal student loan forgiveness in 2021.
Next Steps for Student Loan Borrowers
Interest automatically dropped for federal student loans
Interest rates on all federal student loans will remain at 0% through September 30, 2021.
Overdue accounts automatically receive forbearance
If you are more than 30 days past due on student loan payments, you will automatically receive forbearance through September 30, 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)
Editor's Note: This article contains general information and is not intended to be a substitute for professional advice. Please consult a professional advisor before making decisions about financial issues.
Feature Image: Mableen / E+ / Getty Images
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