How You Could Get a Temporary Break From Student Loans Due to COVID-19

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Even your student loans may succumb to the coronavirus — at least, temporarily.

If you have federally held student loans, the Department of Education announced on March 20 that your interest rate has automatically been set to 0% for at least 60 days.

Additionally, the DOE announced that they will also halt collection actions, wage garnishments, and withholds on federal income tax refunds and Social Security payments due to defaulted student loans.

Here’s all of our coverage of the coronavirus outbreak, which we will be updating every day.

Additionally, you can contact your loan servicer immediately to ask for an administrative forbearance on your federally held student loans for at least 60 days.

During a typical forbearance period, you don’t have to make your monthly student loan payments without becoming delinquent; however, interest typically continues to accrue on the loan during that time. 

But this interest waiver means that you won’t accrue interest during this period. 

Additionally, if you’re at least 31 days behind on your payments as of March 13, 2020, or become more than 31 days delinquent after that date, you’ll automatically be placed in an administrative forbearance.

We’re here to help you figure out how this applies to your loans and whether forbearance is a good option for you.

What to Do About Student Loans During the Coronavirus

However the coronavirus may be affecting you, your student loans aren’t going anywhere for now. Here’s what you need to know about the interest waiver and forbearance benefit.

What Loans Does the Interest Waiver Cover?

The interest waiver covers all loans owned by the U.S. Department of Education, which includes Direct Loans, subsidized and unsubsidized Stafford loans, Parent and Graduate Plus loans, and consolidation loans. 

If you have Federal Family Education Loans (FFEL) and Perkins loans held by the federal government, they’re covered, too — but the majority of those loans are commercially held, which makes them ineligible for the benefit.

You could consolidate your FFEL or Perkins loans into a direct consolidation loan, which would make it eligible for the interest waiver. But if you consolidate and the 60-day waiver ends, your interest rate might be higher than what you’re currently paying, and any outstanding interest will capitalize

Neither private loans nor state-issued ones are included at all in the waiver.

But some states are also getting in on the action: New York state, for instance, is suspending collection of student debt owed to the state.

How do you know what’s covered and what isn’t? 

Call your loan servicer to confirm the type of loan you have, who holds it and how the waiver may affect your loan. 

It’s a good starting point, although with ever-changing events, it’d be a good idea to keep those numbers handy so you can call back for updates from the federal government as well as your state government’s website.

How Does the Waiver Affect Your Monthly Payment?

If you choose to apply for forbearance, your payment will be $0 for at least two months, which could be a big help if you’re struggling to pay bills amid the coronavirus spread.

If you continue making your payments, the interest waiver doesn’t mean your monthly payment will change — the amount you pay would first go toward already accrued interest, and the rest would pay down principal.

In theory, that’s helpful because it allows borrowers to make a bigger dent in their balance while saving on interest.

If your loan is already in forbearance, it will stop accruing interest as of March 13, 2020. However, when your loan goes back into repayment, any interest that accrued prior to that date will capitalize.

What If Your Loans Are Already in Default?

The DOE halted collections and wage garnishments for at least 60 days as of March 13, 2020 — the first day of the national emergency due to COVID-19. Additionally, the U.S. Treasury will stop withholding money from defaulted borrowers’ federal income tax refunds, Social Security payments and other federal payments.

That also means you should stop receiving pesky phone calls from collection agencies, and the DOE stated it will refund any money that was being withheld as of March 13, 2020.

It’s up to your employer to make the changes if your wages are being garnished, so if yours have been since the March 13 start date, contact your employers’ human resources department.

If you have questions about arrangements you have in regards to defaulted student loans, contact the Department’s Default Resolution Group at (800) 621-3115.


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Why You Might Not Want Forbearance 

No payments and no interest for two months — is there any reason not to take advantage of administrative forbearance?

If you’ve lost your job or your income has been drastically cut, and you’re currently on an income-driven repayment plan (IDR), you’re probably better off sticking with your current plan. 

You can update your info and ask your loan servicer to recalculate your monthly payment based on your current income. Depending on the plan, you’ll pay between 10% and 20% of your monthly income — which can be as low as $0 if you have no income. 

If you’re trying to qualify for Public Service Loan Forgiveness, any months of non-payments won’t count toward your required total payments — but payments don’t need to be consecutive.

So what’s the difference between paying $0 via forbearance and $0 on your IDR?

Any time spent in an administrative forbearance does not count toward the required payments toward the required 120 payments to earn your eventual loan forgiveness, but a zero-dollar IDR payment does count.

The Department of Education noted on its website that it may extend the 60-day interest waiver benefit, depending on the status of the COVID-19 national emergency. 

When the zero-interest period end date is set, the Department will post the information to this page and your loan servicer will contact you to let you know you need to resume payments.

And again, if you are able to keep making payments during the interest waiver period, this could actually be a good chance to put a dent in your student loan balance.

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.