Student Loan Interest Remains Waived. Here’s What You Need To Know.

On March 20, 2020, in an effort to ease the financial burden of COVID-19, the government put a halt on federal student loan payments and, along with that, had student loan interest waived during the forbearance. That meant that interest would not accrue on any loan balance, whether the borrower continued making monthly payments or not.

The forbearance was intended to last until September 30, 2020 – with the nation hopeful that things would “return to normal” by then.

More than a year after these measures were initially put into place, the world is slowly opening back up as more and more people get vaccinated. However, we’re still dealing with COVID-19 and its effects on employment and the economy, and many Americans are still in need of financial reprieve. Because of this, the student loan repayment suspension and interest waiver have been extended until September 30, 2021.

So what does that mean for you as a borrower? We’ve got answers to your top questions below.

Federal student loan borrowers have been granted relief in the following ways:

• Payments have been suspended. You are not required to make a monthly payment on your loan at this time.
• Interest on federal student loans has been set to 0%. These loans will not accrue interest during the forbearance period.
• Collections on defaulted loans have been suspended and collections agencies must pause correspondence to borrowers in default.

These measures were put in place automatically for all federal student loans and will last until September 30, 2021.

This date isn’t the first or only deadline the forbearance has had. The deadline has been extended multiple times since March 2020. Here’s an overview of the changes that have been made throughout the last year and a few new developments in possible student loan forgiveness for many borrowers.

• March 13, 2020: Then-President Donald Trump declares a national emergency for COVID-19.
  
  
• March 20, 2020: The office of Federal Student Aid begins suspending loan payments and waiving interest on federal student loans and pausing collections on federal student loans in default.
  
  
• March 27, 2020: The Coronavirus Aid, Relief and Economic Security Act (CARES Act) is signed into law and the student loan relief measures are extended until September 30, 2020.
  
  
• August 8, 2020: With COVID-19 keeping many businesses shut down and unemployment rates still high, the student loan forbearance is extended until December 31, 2020.
  
  
• December 4, 2020: Student loan forbearance is extended a third time, until January 31, 2021.
  
  
• January 20, 2021: President Joe Biden is sworn in and, as one of his first moves as President, he requests the Department of Education extended student loan relief through September 30, 2021.
  
  
• March 13, 2021: Education Secretary Miguel Cardona announces that borrowers who were defrauded by their for-profit schools will receive full student loan forgiveness.
  
  
• March 30, 2021: Student loan relief is offered for Federal Family Education Loans (FFEL), many of which were not previously included in the payment suspension or interest waiver because they were serviced by a commercial lender.

With student loan interest waived, borrowers can breathe a sigh of relief for the time being – but many may still have questions. Here are the answers to the most common ones.

Am I Eligible For Federal Student Loan Assistance?

The Department of Education says that borrowers who’ve made payments after March 13, 2020 are eligible for refunds if they need the cash.

If your loans are in default, you’re safe from collections at this time. You can also receive a refund on any wages or tax refunds that have been seized since March 13, 2020 to pay for these loans.

If your loan is in default with a private collection agency that is contracted by the Department of Education, those agencies are required to stop sending collection correspondence during the suspension. That means you won’t get phone calls, letters or billing statements through September 30.

Can I Continue To Make Payments Even Though Federal Student Loan Payments Have Been Suspended?

Yes, you can continue to make payments. In fact, it’s a great idea because your full payment will go directly toward the principal rather than some of it going to pay interest. This will help you pay down the loan faster. Once the forbearance ends, your loan balance will be lower, which means you’ll be charged less interest.

Here’s an example:

Let’s say you have a student loan balance of $10,000 with an annual interest rate of 4%. Before payments were paused and student loan interest was waived, your monthly payment was $300 – with about $42 of that paying interest. If you don’t pay anything during the forbearance (March 2020 – September 2021), you’ll have a loan balance of $10,000 when forbearance ends and you’ll be charged about $42 per month in interest.

Now, if you’re able to keep paying $300 per month, the full $300 will go toward paying down your loan. That means, the $42 you were paying in interest is applied to your loan balance instead. That’s an extra $504 per year going toward your loan balance.

If you made that $300 payment from March 2020 to September 2021, a total of 19 months, with the full amount going toward your principal balance, you’d be able to pay off $5,700 of that loan and you’d have a loan balance of $4,300. Because the balance would be lower, so would the amount of interest you’d be charged each month. When the forbearance is over, you’d be charged less than $20 per month in interest.

Has Private Student Loan Interest Also Been Waived?

No. Student loan interest has been waived and payments have been paused for federal student loans only. The Department of Education does not have the legal authority to make rules for private loans.

If you currently have private loans and are struggling to pay them, reach out to your lenders to see if they have any relief measures available. Here are some of the options some private lenders have offered borrowers:

• Forbearance up to 24 months on a case-by-case basis
• Temporary lower interest rate
• Temporary lower payment
• Interest-only payments
• One month of payments skipped every 12 months
• Payment postponement

Many of these options are provided on a case-by-case basis and may only be offered to borrowers in good standing who have made consecutive on-time payments. Keep in mind, too, that many private loan relief options will not pause interest and it may continue to accrue even if your loan goes into forbearance or you’re able to skip payments. Make sure you do your research and work with your lender to see what’s available for you.

Is Now A Good Time To Refinance My Student Loans?

It may be a good time to refinance student loans if you currently have them since rates are still low. However, if you have federal student loans right now, you should not refinance at this time. When you refinance federal student loans, you do so through a private lender, which turns them into private loans with new terms. By doing this, you’ll lose the suspension on payments and interest because it’s only available to federal loans.

If you’re still wondering whether to refinance your student loans, speak to a financial advisor, who can give you the best advice based on your financial situation.

How Does Suspending Student Loan Payments Affect My Participation In Student Loan Forgiveness Programs?

Pausing payments will not affect your participation in student loan forgiveness programs as long as you continue to work full-time for a qualifying employer during the time of the suspension. These programs include the Public Service Loan Forgiveness (PSLF) and Temporary Expanded Public Service Loan Forgiveness (TEPSLF) programs.

What Can I Do To Protect Myself From Student Loan Scams During COVID-19?

Unfortunately, scammers see vulnerable times as great opportunities to prey on borrowers and take advantage of their stress. Many student loan scams involve a caller from an unknown number promising to pay off your student loans or promising immediate student loan cancellation. If you’re unsure, there are some ways to tell it’s a scam. Watch for these red flags:

• They charge a fee.
• The voice on the other end is a recording.
• They ask for personal information, including your Social Security number, FSA ID password, bank account information or credit card number.
• They promise immediate relief.

If you think you’re being scammed or have been scammed, contact your lender and consider filing a complaint with the Consumer Financial Protection Bureau (CFPB).

Are Other, Larger Relief Measures Coming?

As of right now, that’s still up for debate. President Biden has shown support for canceling $10,000 of student loan debt for every federal student loan borrower but has opposed the much larger-scale proposal for $50,000 forgiveness. And while he’s looking into using his authority to cancel student loan debt by way of executive order, Biden would prefer Congress to work together on creating legislation that would provide this type of relief. With such polarized parties, that may be easier said than done.

As mentioned earlier, student loan borrowers who were defrauded by their colleges may have an easier time finding relief, according to the Department of Education, which announced in March that it will provide full cancellation for borrowers with rightful claims of fraud. Not only will their loans be forgiven, but they may also get a reimbursement for any money paid toward those loans and have late payments for those loans wiped from their credit reports.

Until September 30, 2021, federal student loan borrowers are not required to make a payment on their student loans and the loans will not accrue interest during this forbearance. Collections on federal student loans in default are also paused. While it’s not required, it may be a good idea to continue making payments on your loans if you’re able because, with student loan interest waived, your full payment will go toward paying down your principal balance.

Remember that only federal student loans are eligible for the student loan interest waiver and administrative forbearance. If you have a private student loan, you’ll need to contact your lender to request hardship assistance. While lenders aren’t required to help, many banks, credit unions, online lenders and schools are offering assistance on a case-by-case basis.

Visit our COVID-19 resource guide for more information, and be sure to check out our articles on the first stimulus check, second stimulus package, and third stimulus check if you’re interested in learning more about past financial relief efforts.