President Biden instructed the United States Department of Education to extend the coronavirus-related payment suspension and 0% interest rate on certain federal student loans for another 90 days on December 22, 2021.
The payment freeze had been set to terminate at the end of January, but it has now been prolonged until May 1, 2022.
The following is what borrowers should know about the extension:
According to the Department of Education’s coronavirus relief homepage, the conditions of the relief will be the same as the payment extensions for 2020 and 2021. As a result, the following terms will remain in the extension:
Covered loans: The relief will continue to apply exclusively to Direct Loans and any other federal student loans that the Department of Education presently holds.
This implies that borrowers with non-defaulted commercially owned Federal Family Education Loans (FFELs) and school-held Perkins Loans would not benefit from this decision. (For more information on determining if your loans are held by the Department, see here.)
Suspended payments: Monthly payments on insured loans will be automatically halted until at least May 1, 2022. This implies that debtors will not be forced to make payments during the suspension, however those who choose to do so may do so.
Temporary 0% interest rate: For covered loans, the 0% interest rate will remain in effect until at least May 1, 2022. This implies that during the suspension, no interest will be levied on covered loans, and borrowers’ balances should not increase.
Time in suspension counts toward IDR and PSLF Forgiveness:For borrowers engaged in Income-Driven Repayment programmes (IDR), the months spent in payment suspension will contribute towards IDR debt forgiveness.
Borrowers working towards Public Service Loan Forgiveness (PSLF) will earn credit against their forgiveness clock during the suspension if they otherwise fulfil PSLF standards during the suspension.
Extension on time to recertify: Previous extensions of the payment suspension included extending out the yearly recertification date until at least the end of the suspension period for borrowers registered in IDR.
This extension should function in the same way: debtors may be forced to recertify as early as August 2022, according to the Department’s website. IDR borrowers should keep checking with their loan servicer and the Department of Education’s website to see when it’s time to recertify their income.
Borrowers may recertify at any time, so those who have seen a drop in income should recertify sooner rather than later to ensure that they have a manageable payback amount when payments start.
Suspension of collection on defaulted loans: No collection operations shall be carried out on defaulted covered loans until at least May 1, 2022. To collect on defaulted covered loans, there should be no collection calls, wage garnishment, or money seized from borrowers’ tax refunds or Social Security benefits.
Borrowers in default might consider filing their taxes early in 2022 to increase their chances of receiving their tax returns before May 1 — and avoiding collection and refund seizures.
Suspended payments count towards loan rehabilitation: For borrowers who sign into a rehabilitation agreement to bring their covered loans out of default, payments suspended after the agreement’s effective date will count towards the minimum nine instalments to rehabilitate a loan.
Borrowers who haven’t made nine months of qualifying suspended or mandatory payments before the end of the payment suspension will have to start making payments after the suspension expires in order to complete rehabilitation.
Here are a few steps borrowers with federal student loans may do to get access to or make the most of this ongoing relief:
Borrowers with privately owned FFEL and Perkins loans may consider combining into the Direct Loan programme to take advantage of payment suspension and interest pause, as well as additional incentives available to Direct Loan borrowers (e.g., lower IDR payments under the Revised Pay As You Earn plan).
Consolidation, however, has significant potential drawbacks, and some borrowers are not qualified to consolidate, so it is not a good idea or even a viable option for all borrowers.
Borrowers may discover more about the benefits, drawbacks, and eligibility requirements for consolidation by visiting this page.
Borrowers who are not already enrolled in an income-driven repayment (IDR) plan should consider switching to one so that the time spent in suspension contributes towards ultimate IDR debt forgiveness.
Borrowers who do not wish to move to IDR might consider making voluntary payments on their student loans now, even if they are not compelled to do so, in order to continue making progress towards paying off their loan and being debt-free.
Borrowers with failed loans may consider filing their taxes early in 2022 to increase their chances of receiving any tax refunds due to them before the payment halt ends–and the Department resumes seizing tax refunds to collect on defaulted loans. Borrowers should think about if this is a suitable moment to get out of default.