On January 20, 2021, his first day in office, President Biden directed the U.S. Department of Education to extend the coronavirus-related payment suspension and 0% interest rate on certain federal student loans. This relief had been set to expire on January 31, 2021. Hopefully, this is the first of many actions Biden takes to fulfill his campaign promises to struggling student loan borrowers.
Here’s what borrowers need to know about the extension:
The President’s announcement did not include many details, but the Department of Education’s webpage about coronavirus relief states that the student loan relief will last “at least through Sept[ember] 30, 2021.” Attorneys with the National Consumer Law Center have been told by people who work at the Department as well as its loan servicers that the terms of the current coronavirus student loan relief put in place in 2020 will remain the same under this extension. That means the extension will continue to include the following terms:
- Covered loans: Relief will continue to apply only to Direct Loans and to any other federal student loans that are currently owned by the Department of Education. This means that borrowers with commercially-held Federal Family Education Loans (FFEL) and school-held Perkins Loans will not get relief on those loans under this action. (See info here on how to figure out whether your loans are owned by the Department.)
- Payment suspension: For covered loans, monthly payments are not required during this extension and will be automatically suspended through at least September 30, 2021. Although payments are automatically suspended, borrowers who want to make payments during the suspension may do so and should contact their servicer or visit their servicer’s website to do so.
- Time in suspension counts toward IDR and PSLF Forgiveness: For borrowers enrolled in income-driven repayment plans (IDR), the suspended payments will count toward IDR loan forgiveness, so not making payments on covered loans during the suspension will not delay eventual forgiveness. The same goes for borrowers working toward Public Service Loan Forgiveness (PSLF): borrowers with a Direct Loan working full-time for a qualifying public service employer during the suspension will receive credit toward PSLF or TEPSLF for the period of suspension as though they made on-time monthly payments in the correct amount while on a qualifying repayment plan.
- Extension on time to recertify: For borrowers enrolled in IDR, previous extensions of the payment suspension included pushing out the annual recertification deadline to at least the end of the suspension. This extension should work the same way. Borrowers should continue to check with their loan servicer and the Department of Education’s website to determine when it will be time to recertify their income. Borrowers can recertify at any time, so those who have experienced a decrease in income can recertify sooner to ensure that they have an affordable repayment amount when payments resume.
- Suspension of collection on defaulted loans: For covered loans that are in default, no collection activities should occur through at least September 30, 2021. This means there should be no collection calls, no wage garnishment, and no money taken out of borrowers’ tax refunds or Social Security benefits to collect on defaulted covered loans.
- Time in suspension counts toward rehabilitation: For borrowers who enter into a rehabilitation agreement to get their covered loans out of default, the suspended payments will count toward the required nine payments needed to rehabilitate a loan. Any borrowers who haven’t made or been given credit due to the payment suspension for all of the nine required payments by the end of the payment suspension, will have to begin making payments after the payment suspension ends to complete rehabilitation.
- Temporary 0% interest rate: For covered loans, the Department has temporarily set interest rates at 0% through at least September 30, 2021. This means interest is not being charged on covered loans during the suspension and borrowers’ balances should not grow during this time.
To access or make the most of this continued relief, here are a few actions borrowers with federal student loans might consider taking:
- Borrowers with privately-held FFEL and Perkins loans might consider consolidating into the Direct Loan program to be eligible for the payment suspension and interest pause, and other benefits afforded to Direct loan borrowers (e.g., lower IDR payments under the Revised Pay As You Earn plan). But there are serious potential downsides to consolidation, and some borrowers are not eligible to consolidate, so this is not a good idea or even a possibility for many borrowers with ineligible loans. Borrowers can learn more about the pros, cons, and eligibility restrictions for consolidation here.
- Borrowers who are not currently in an income-driven repayment (IDR) plan should consider whether it makes sense to switch into an IDR plan so that the time in suspension counts towards eventual IDR loan forgiveness. Borrowers who do not want to switch to IDR, which may include high-income borrowers who may pay more under an IDR plan, might consider whether to make voluntary payments on their student loans now, even though payments aren’t required, so that they can keep making progress toward paying off their loan and becoming student debt-free.
- Borrowers with loans in default should consider whether this is a good time to get out of default. In general, there are two ways that borrowers can get out of default: loan rehabilitation and consolidation. The payment suspension, which affords credit toward the nine required payments to rehabilitate out of default, may ease and lower the cost of rehabilitating out of default. Additionally, borrowers eligible to consolidate out of default might find now a good time to do so, as they could take advantage of the payment suspension after emerging from default and begin earning credit toward IDR or PSLF forgiveness if eligible for those programs. Be advised that you are entitled to get out of default through rehabilitation only once per loan. There are also limits on how many times you can consolidate. More information about how to get out of default is available here.