Federal student loan borrowers are getting an extension — again — this time until September 2022. For those keeping score, this is the sixth student debt reprieve since the start of the pandemic.
The freeze on interest rates and payments for federally held student loans — aka administrative forbearance — has been extended by the Department of Education through Aug. 31, 2022. Millions of Americans were staring at the resumption of federal student loan repayments on May 1 until the Biden administration announced this latest pause. Payments will now resume on Sept. 1, 2022.
The deadline for the student loan payment pause has been extended six times since the initial forbearance period began in March 2020, at the onset of COVID-19. Anyone with federal student loans has not been required to make payments in more than two years.
The four-month extension is largely attributed to the ongoing economic recovery from the pandemic. During the two-year pause in federal student loan payments and interest, several automatic student loan forgiveness programs have been initiated. They have given relief to nearly 500,000 people, including active military personnel and veterans, people working in the public sector and those with qualifying disabilities.
Although the Biden administration suggested back in January that the extensions were ending, this latest student loan payment pause is framed as a way for borrowers to prepare to resume student loan repayment.
“This additional extension will allow borrowers to gain more financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic,” U.S. Secretary of Education Miguel Cardona said in the statement.
According to the Education Data Initiative, about 43.4 million Americans owe a collective $1.75 trillion in federal student loan debt.
Here’s what else you need to know about the student loan extension.
What Is Student Loan Administrative Forbearance?
The pause on payments and interest accrual is an extension of the administrative forbearance that originated with the Coronavirus Aid, Relief, and Economic Security Act — the CARES Act — passed in March 2020.
Directed by the emergency legislation, the Department of Education initially announced that all federally held student loans would be placed in administrative forbearance through Sept. 30, 2020. Interest rates were automatically set to 0% and all federal student loan payments were suspended.
Then-President Donald Trump later signed an executive order to extend the administrative forbearance period until Dec. 31, 2020, and the Secretary of Education extended those measures until Jan. 31, 2021.
On his first day in office, President Joe Biden signed an executive order extending the freeze on interest rates and payments for federally held student loans through Sept. 30, 2021.
On Aug. 6, the Department of Education extended the student loan payment pause again — this time until Jan. 31, 2022. Then in December, the department issued another extension for federal student loan borrowers until April 30, 2022.
And now, the DOE has extended the pause through the end of August 2022.
What Loans Does Payment Pause Cover?
The interest waiver covers all loans owned by the U.S. Department of Education, which includes Direct Loans, subsidized and unsubsidized loans (sometimes called Stafford loans), Parent and Graduate Plus loans and consolidation loans.
If you happen to have Federal Family Education Loans (FFEL) and Perkins loans held by the federal government, they’re covered, too. But the vast majority of those loans are commercially held, which makes them ineligible for the benefit.
What Does This Mean for Federal Student Loan Borrowers?
There are four things to know about how administrative forbearance affects student loans through Aug. 31, 2022:
- It suspends loan payments.
- It stops collections on defaulted loans.
- It sets the interest rates to 0%.
- Each month of the suspension counts as a payment for the purpose of a student loan forgiveness program.
Note that the suspension does not mean that the federal government is making your student loan payments for you — you’ll just be free of making loan payments without accruing interest or incurring late fees while the pause is in effect.
The latest student loan extension begs the question of how long federal loans could remain in forbearance and whether this could eventually lead to the cancellation of student loans. That remains to be seen.
What Should Student Loan Borrowers Do?
If you have federally held student loans, save the money that you’d normally put toward your federal student loan payment in a savings account. Although there’s a slim possibility that the federal government will wipe out student loans, it would not be wise to bet on that outcome.
What if you haven’t lost income and have federal student loans?
If you have federally held loans, save the money that you would’ve used for payments in an easy-to-access account. If and when the student loan pause ends, you can pay off a lump sum of the balance before your loans begin accruing interest again.
Although it might be tempting to get more impressive returns, student loan borrowers shouldn’t tie up would-be payments in investments that could decline in value in the short term or charge fees for early withdrawals.
If the government ends the student loan payment pause, you might need to access your money quickly to avoid paying any extra interest on your loans.
And if it turns out that your student loans are wiped out, you have a nice nest egg to use as a down payment for a house, to boost your emergency fund or to build your retirement fund.
What if you lost income during the student loan pause?
If you lost income during the forbearance period, you can apply for an income-driven repayment plan or update your information at StudentAid.gov/IDR and calculate a new payment amount. That way, when the forbearance period ends, you can start making lower payments.
If you are already on an income-driven repayment plan, don’t pay anything during forbearance. Making additional payments only reduces a balance that will eventually be forgiven, and all those months of non-payments still count toward the total number of required installments to qualify for forgiveness.
What other options are available for student loan forgiveness?
The federal government is unlikely to wipe out student loans across the board, but there are other ways to cancel your student loan debt, including student loan forgiveness and discharge. Most forgiveness programs, including the Public Service Loan Forgiveness program, are dependent on your job or employer to qualify.
If you’re already on track for recently revamped PSLF — you have a direct loan, you’re on an eligible repayment plan and you work for a qualifying employer — then you can take advantage of the relief period through Aug. 31, 2022. Those zero-dollar payments still count toward your total to earn forgiveness.
But there’s an exception.
If you’ve lost your job or have had your hours cut to less than the 30-hour minimum, your non-payments will not count toward forgiveness (but you still don’t have to pay). PSLF does not require consecutive payments, so you can still use the forbearance if you think you’ll return to your non-profit or public sector job.
However, if you lose your qualifying job and you get a private-sector job instead, your payments will no longer count under the program. Unless you go back to a public service job, your loans will not be eligible for PSLF.
What if you have both federal and privately held student loans?
If you have both federally held and privately held student loans, now may be a good time to pay down the balance of the privately held ones.
Because commercial student loans aren’t subject to the student loan pause, those loans are still accruing interest. Because of the pause in interest on federal student loans, you can use the money you’d normally pay for them to reduce the balance on your interest-accruing private student debt. (This strategy also applies to credit card debt and any other interest-accruing loans you may have.)
Not sure who holds your student loans? Call your loan servicers to confirm. And remember, just because one loan is federally held doesn’t mean the other one is, so check on the status with each loan servicer.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.