Federal Student Loans Are Paused Until Oct. 1

Federal student loan borrowers' interest-free payment pause will now extend through September 2021.

Anna HelhoskiJanuary 20, 2021

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The federal student loan forbearance, without interest, will continue through Sept. 30, 2021 via executive order from President Joe Biden on Inauguration Day.

This policy does not apply to private student loans.

Federal student loan borrowers have been in an automatic interest-free pause on payments as part of the original coronavirus relief bill, known as the CARES Act. The pause was expected to sunset as of Jan. 31, 2021, after being extended twice by the Trump administration.

Here’s what the student loan payment relief extension is likely to mean for you, depending on your situation:

You have federal loans and face financial hardship

Eventually repayment will begin. The ongoing extension gives you enough time to make a change to your federal loan payments and avoid defaulting on the loans.

“There is no harm or downside in talking to your servicer now,” says Scott Buchanan, executive director of Student Loan Servicing Alliance, the trade association of student loan servicers. “You want to be well-prepared for whenever this does expire.”

If you know you’ll have difficulty repaying the debt, contact your servicer now about enrolling in an income-driven repayment, or IDR plan — it caps payments at a portion of your income and extends the repayment term. If you don’t have a job, your payment could be zero. If you’re already enrolled in IDR, make sure to recertify your income if it has changed.

You can still make payments on your federal loans

If your finances haven’t been affected by the economic downturn, you can use this time to prioritize financial goals.

Consider making payments to lower your overall debt, depending on your original repayment strategy. Your payments will be applied to any interest accrued first before your principal, but any payment will help you reduce the total amount you'll pay over the life of the loan. Since your loans are on automatic forbearance, you’ll need to contact the servicer to do so.

You can also make a dent in other financial goals, such as paying down credit card debt or padding your emergency fund.

Your federal student loans are in default

All collection activities on federal student loans are suspended through Sept. 30, such as wage garnishment and collection calls as part of the CARES Act and the December memorandum extending relief, according to the Department of Education. This is expected to be extended along with the payment forbearance.

Your federal student loans are in loan rehabilitation

If you’re currently rehabilitating defaulted student loans, each of the months of nonpayment during the pause will count toward the nine needed to complete the process.

You’re pursuing Public Service Loan Forgiveness

Federal student loan borrowers pursuing Public Service Loan Forgiveness don't need to make payments until payment eventually begins. All months of nonpayment will still count toward the 120 payments needed to qualify for PSLF as long as you're still working full time for an eligible employer.

You recently graduated from college

If you were expecting to start making payments on your loan within the period of extended forbearance, your first payment won’t be due until repayment begins. Usually, interest accrues during a grace period, but if your six-month grace period overlaps with the administrative forbearance period, interest won’t grow.

Use this time to find out who your servicer is and what your first bill will look like.

If you think you can’t make your minimum payment when repayment begins, you can apply for an income-driven repayment plan to cap payments at a portion of your income (it could be zero if you don’t have a job). Apply for income-driven repayment at least two months before repayment starts.

You’re taking time off from school

Federal loans typically have a grace period of six months after you leave school. If you have student loans and last attended school in the spring, your payments would have started to come due this fall. The extended forbearance period would delay your first payment until the forbearance extension ends.

When you resume classes, you can defer payments until you finish school as long as you are enrolled at least half time. But student loans get only one grace period; you won’t have another after you graduate or leave school again.

You have private student loans

Your lender may offer private student loan relief in the form of a payment pause or reduced payments. While a number of lenders structured relief plans ended during 2020, many are open to an extension or additional relief in 2021.

Contact your lender to ask about additional deferments or payment reductions. You can also apply for existing loan modification programs for financial hardship. These will vary from lender to lender — but interest will continue to accrue, unlike with federal loans.

You’ll likely have to apply for private loan relief individually since most lenders aren’t making payment pauses or loan modifications automatic, Mayotte says.

You have nongovernment owned FFEL or Perkins loans

Student loan borrowers with the Federal Family Education Loan (FFEL) Program or Federal Perkins loans not owned by the Education Department don’t have access to the automatic forbearance.

To take advantage of the forbearance, you’ll need to combine your loans into a federal direct consolidation loan. Consolidating loans will cause any unpaid interest to capitalize, or be added to the principal balance. Contact your loan servicer to determine how consolidation will affect the total repayment amount, interest rate and loan balance.

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