Clever Girl Finance has received a lot of questions about the recent extension announcement of the Federal Student Loan Forbearance Program as a result of the Coronavirus. The federal student loan suspension has recently been extended with an executive order until December 31st, 2020.
This article covers the key information you need to know.
What is the Federal Student Loan Forbearance Program?
The initial Federal Student Loan Forbearance Program was part of the 2020 CARES Act Coronavirus Aid, Relief, and Economic Security act) put in place by the U.S. government. It was a way to provide financial relief to individuals and businesses impacted by the global Coronavirus pandemic. It also included the distribution of stimulus payments to help individuals and businesses get through this difficult season.
As of August 8th, 2020, due to the impact of Coronavirus, federal student loan payments have been further suspended until December, 31st.
What you need to know about the Federal Student Loan Forbearance Program
If you currently have loans that fall under this program, here are some key things to know.
1. 85% of federal student loan payments have been suspended from March 13th, 2020 until December 31st, 2020
According to the U.S. Department of Education, the federal student loans that are eligible include:
- Defaulted and non-defaulted Direct Loans
- Defaulted and non-defaulted FFEL Program loans
- Federal Perkins Loans
All of these loan payments are suspended from March 13th, 2020 until December 31st, 2020. Previously, this extension only went up until September 30th.
Keep in mind that not all loans are eligible for suspension. Specifically, some Federal Family Education Loans (FFEL) owned by commercial lenders are not eligible. In addition, Perkins Loans owned by the institution you attended are also not eligible.
Since not all federal student loans are included, you should contact your servicer to confirm the eligibility of your student loans. You can contact them by visiting their websites or over the phone. Keep in mind they might be experiencing high call volume or high site traffic. So be prepared to try again if you can't reach them.
2. Federal student loan suspensions (including interest waivers) are automatic
According to the U.S Department of Education, the eligible student loans are being placed into administrative forbearance. The suspensions are automatic and no further action is required on your part. In addition, all interest accruals and associated capitalization that would occur between March 13th and December 31st, 2020 have been put on hold. This means you will not be charged interest over this 6 month period.
For peace of mind, log in to your loan accounts or contact your servicer directly to confirm that this is the case for your loans.
3. The initial changes were retroactive to March 13th, 2020
Based on the initial suspension announcement in March, all changes related to the suspension of federal student loans were retroactive to March 13th, 2020. This meant if you made a payment after March 13th, you could request a refund by contacting your student loan servicer.
To confirm this is still the case, you'd need to contact your loan servicer.
4. People enrolled in a loan forgiveness program will still receive credit
If you are in a loan forgiveness program, you will still receive credit toward your forgiveness program as long as you are still working full time for a qualifying employer. According to the U.S department of education, you will receive credit toward PSLF for the period of suspension as though you made on-time monthly payments.
5. Collections and garnishments are on hold and will not accrue interest
Collections on defaulted federal loans, including wage and tax refund garnishments, have been put on hold through December 31st, 2020. In addition, defaulted loans will not accrue interest. The Department of Education is also refunding any garnishments made since March 13.
6. Many loan servicers have established separate programs for non-eligible loans
If your federal student loan falls into the category of loans that are not eligible, contact your loan servicer directly. Many have established independent relief programs. The same applies to private student loan servicers; many of them have also established relief programs for their loan holders.
7. You can keep making loan payments but they will not be automatically debited
If you are able, you can keep paying your loans. However, keep in mind that auto-debits have been suspended. You may need to contact your loan servicer to make manual payments. If you continue to make payments on your loans over this 6-month period, you have the opportunity to make a major dent in your principal balance since there will be 0% interest.
For more details and for the latest info, visit the U.S. Department of Education's announcement page specific to Coronavirus at studentaid.gov. They are also actively updating an in-depth Q&A page as it relates to school closures, getting additional financial aid, income-driven repayment plans, and more.