Student loan debt reached $1.48 trillion in America by the end of 2019, with approximately 45 million borrowers across the United States.1 Amidst the COVID-19 pandemic, many Americans have experienced financial instability. This means that for 45 million Americans, paying down student loan debt may be harder than ever before.
Last year, the CARES Act was signed into law on March 27. While this stimulus package provided a wide array of assistance for families and businesses, it also made some important changes to assist federal student loan borrowers. Through the end of September 2020, federal student loan payments were suspended and no further interest was accrued. This date was extended twice, initially until the end of December and again until the end of January 2021.2
Biden’s Executive Order
President Bident took office on Jan. 20 and, in a historical move to combat several ongoing crises across the country, signed 17 executive orders. One of these orders requested the Department of Education continue to put a pause on student loan repayments amidst the continuing pandemic.
As legislation continues to change regarding COVID-19 and student loan repayment, we’ve provided the answers to a few important questions regarding student loan debt during the current pandemic.
Question #1: Are Interest & Payments Suspended on All Student Loans?
The suspension of payments applies only to student loans that are held by the federal government. However, your FFEL (Federal Family Education Loan) lender or school may have suspended interest and payments voluntarily, but they are not required to do so.
In regards to your federal student loans, your servicer will suspend all interest and payments through September 30, 2021.2
The federal moratorium does not apply to private student loans that are owned by banks, credit unions, schools or other private entities. If you are trying to suspend payments to these institutions, you will need to contact them and find out what your options are.
Question #2: Should I Apply to Suspend My Payments or Interest?
Until September 30, 2021, there will be no interest accrued or payments due for federal student loans.2 No action is required on your part, as these payments will be stopped automatically.
Question #3: What Should I Do if I’m Behind on Payments?
On March 25, 2020, the Department of Education announced that it would not be withholding federal tax refunds, Social Security payments or garnishing wages from those who have defaulted on their federal student loan payments.2 Additionally, private collection agencies contracted by the government will put a pause on attempting to contact defaulted borrowers. These changes will continue to be in effect through the ongoing COVID emergency period.
Any defaulted federal student loan will not collect interest until September 30, 2021.2
As the pandemic continues on into 2021, it’s likely you’re experiencing a certain level of financial stress. Continuing to make regular payments to your federal student loans can be beneficial in the long-run, but it’s important to know your options are continuing to change amidst this federal emergency. If you’re unsure whether to stop payments or not, get in touch with your financial advisor first. Together, you can make a game plan moving forward.
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