Student Loan Payments Suspended Due to Coronavirus
- The coronavirus relief package now suspends federal student loan payments through Dec. 31.
- Federal student loan interest rates also drop to 0% during the same period.
- The measures apply only to federal student loans and have no effect on 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 (ED) suspended payments and interest on federal student loans for 60 days. With the signing of the coronavirus relief bill by President Trump, these measures were extended through September 30.
In light of the ongoing public health crisis and soaring unemployment rates, President Trump issued an executive order on August 8, which extends student loan suspensions and 0% interest rates through December 31. However, certain kinds of loans may start accruing interest after September 30.
The coronavirus relief bill took effect immediately and also suspended wage garnishment and tax refund reduction for anyone who defaulted on their federal student loans. While interest rates automatically went to 0%, borrowers still have to opt in to forbearance. Credit ratings are not affected by the suspension, and borrowers who still want to pay down the principal on their loans may continue doing so during this period.
The federal student loan interest rate is set to 4.53% for the 2019-2020 school year, down from last year's 5.05%. A student with $25,000 in loan debt normally pays about $90 per month in interest. Now, students will pay no interest until at least January 2021 — possibly longer.
A student with $25,000 in loan debt normally pays about $90 per month in interest. Now, students will pay no interest until at least January 2021 — possibly longer.
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.
Last year, national student loan debt hit $1.6 trillion. The student debt crisis, and the larger question of college affordability, has prompted proposals from both ends of the political spectrum. While Democrats have suggested sweeping reforms, until recently the Trump administration had done little to stem the growing crisis.
"These are anxious times," Secretary of Education Betsy DeVos said in ED's announcement earlier this spring. She expressed hope that the break for student loan borrowers would provide "meaningful help and peace of mind."
HEROES Act Would Suspend Student Loan Payments Through 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.
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 of debt for every student loan borrower.
The ambitious bill, which passed in the House of Representatives in mid-May but still awaits passage in the Republican-controlled Senate, would also extend relief to private loan borrowers and suspend student loan payments through September 2021 — almost a year past the current suspension end date.
Furthermore, the HEROES Act would allow adult dependents, many of whom are college students, to receive $1,200 stimulus checks, which the current coronavirus aid bill does not 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 December 31.
Overdue accounts automatically receive forbearance
If you are more than 30 days past due on student loan payments, you will automatically receive forbearance until December 31.
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 elgibility criteria.