The coronavirus has upended our way of life in just a few weeks. Businesses are shuttered, schools are closed, and millions of people have been laid off from their jobs. Families across the country are reeling from a financial squeeze that seemed impossible just a month ago.
The government has responded to these developments with a number of things to help Americans and stabilize the economy, including a six months student loan payment suspension and interest waiver.
I never imagined federal student loan borrowers would see a six month break from their payments, but it should provide some short-term relief for millions of student loan borrowers.
Today, I’m going to explain the six month payment suspension and how the federal student loan interest waiver works. I’m also going to answer some of the most important questions about what’s currently happening with your federal student loans.
5 important changes to your federal student loans
There are a few key things you need to know about your federal student loans. The most important thing to note is that these changes apply only to federal student loans. These changes do not affect private student loan borrowers.
The five federal student loan changes I’m about to explain are all part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27, 2020. It’s the $2 trillion economic stimulus package that also includes stimulus checks to most Americans.
Here’s what the CARES Act means for your federal student loans:
1. 6-month payment suspension
One of the largest provisions is a six-month payment suspension on federal student loans that lasts until September 30, 2020.
That means you do not have to make payments on most federal student loans until after September.
This is an automatic payment suspension, so you don’t have to do anything on your end to request or initiate the suspension.
Loan servicers are trying to get this updated in their systems, and it may take a few days to see the changes. But soon they should all have some note on their website about the suspension. Here’s what loan servicer Navient had on their site when I was writing this:
The key takeaway here is that Navient and other federal student loan servicers will turn off automatic loan payments on April 10, 2020. You’ll receive a notification when this happens.
And remember: this applies to federal student loans only. You need to keep making payments on your private student loans.
Honestly, I’m not sure I could ever have imagined we would see payment suspensions on federal student loans, but here we are.
2. 0% interest on federal student loans
Federal student loan interest rates have been set to 0%, so interest will not accrue on your loans through September 30, 2020.
The federal student loan interest waiver is retroactive back to March 13. It was actually the first change announced by President Trump, and it’s since become part of the CARES Act.
It’s important to note that this isn’t waiving all federal student loan interest – it’s just that you have a six month break from interest being added to your federal student loan balance.
3. The six month suspension counts towards PSLF
Public Service Loan Forgiveness (PSLF) is one of the most frustrating and confusing programs for federal student loan borrowers. You’re supposed to make 120 qualifying payments under a qualifying loan program, and then you’ll receive some loan forgiveness, but it hasn’t worked like many borrowers expected.
The confusion around PSLF has left many Americans wondering if the six-month payment suspension will change their status. Here’s the answer:
The next six months of suspended payments will count towards your 120 qualifying monthly payments.
You won’t have to make up six months of payments if you’re pursuing PSLF. The suspended payments count as six months of qualifying payments.
These six months will also count towards income-driven repayment plans that require 20 or 25 years of qualifying payments.
4. Your credit score won’t be affected by suspended payments
Suspended payments are not being reported to credit agencies as missed payments. So, if you have a stellar credit score or are rebuilding your score with on-time payments, you don’t need to worry about any dings to your credit score.
You should still keep an eye on your credit score to make sure there isn’t any fraudulent activity.
5. Federal student loan debt collection has been halted
If you are so far behind on your federal student loan payments that you are in collections, the CARES Act has stopped further collections through September 30, 2020.
The federal government will not garnish your wages, tax refund or Social Security benefits because you’re behind on your federal student loan payments.
Does this affect all federal student loans?
It affects all student loans that are held by the federal government.
- Direct Stafford Subsidized
- Direct Stafford Unsubsidized
- Direct Grad PLUS
- Direct Parent PLUS
- Federally Held FFEL
- Federally Held Perkins
Note that some FFEL and Perkins loans will not qualify because that debt is held by private banks and universities. You can always check with your loan servicer, but their lines are going to be busy at this time.
Should you keep making your student loan payments?
This is a great question, and the answer depends entirely on your current financial situation.
I am a big fan of destroying your student loan debt, but I realize there are a lot of people with higher financial needs right now.
If you’ve lost your job or had your hours drastically reduced, you may need your student loan payment to cover food, housing, medical expenses, childcare, and anything else essential for day-to-day life.
If your job is stable but you’re worried about what will happen to it in the next few months, you might want to take advantage of the suspension and put your payment towards your emergency fund.
Or, you can keep making payments on your student loans. You can even take advantage of the debt snowball or avalanche method to attack specific student loans. The debt snowball focuses overpayments on your smallest debts first, and the avalanche focuses on the ones with the highest interest rates (but since interest is now set to 0%, you may need to contact your loan servicer to find out which ones those are).
The point is to do what’s right for you right now.
What about private student loans?
As of now, you need to keep paying your private student loans. These changes only affect federal student loans.
Contact your loan servicer to find out what your options are if you’re unable to make your payments right now. Some can offer specific help if you’ve lost your job, and others offer forbearance.
Another option is refinancing, but it’s not for everyone. You can learn more about whether or not you’re a good candidate for student loan refinancing at Refinancing Student Loans: The Ultimate Guide, Should I Refinance My Student Loans, and Credible Review 2020: Easily Compare Student Loans in 2 Minutes.
Things are changing rapidly
Here’s the other thing happening with your student loans: things are changing really quickly.
It’s been confusing for a lot of people, and I promise you that media sources are working hard to keep up with all of these changes. To give you a sense of how quickly things have shifted, this post was supposed to be titled, “How the Student Loan Interest Waiver Works.” But now these changes encompass much more than just an interest waiver.
And it’s possible that I’ll need to update this post with more changes in the future… but don’t worry, I’ve got you covered.
If you’re interested in what the timeline for all of these federal student loan changes, here it is:
- March 13: President Trump announces a plan to waive interest on federal student loans.
- March 20: Federal student loan borrowers can officially defer payments for 60 days and student loan interest is waived retroactively from March 13.
- March 27: a stimulus package was signed into law and includes suspending federal student loan payments until September.
What happens after September?
As of right now, you’ll start making payments on your federal student loans again. Interest will go back up, and the rest of the provisions will return to normal.
The Department of Education will start sending out notices in August to remind you about your payments and when they’re due. There will also be information about income-driven repayment plans if you’re still experiencing financial stress.
The final word on the changes made to your federal student loans
The reality is that we have no clue what’s going to happen between now and September. And like I said earlier, it’s possible we’ll see more policy changes on federal student loans.
Take these next few months to take care of yourself and your finances. If you need to use your payment amount to pay your bills, that’s what the suspension is there for. But do what’s right for you.