The student loan payment break and interest waiver will expire in mid-2023. When this is the case, what options are available for financial aid if you haven’t yet found a job and are still struggling to repay your student loans?
The payment pause and interest waiver, which began March 13, 2020, suspends the obligation to repay federal student loans held by the U.S. Department of Education. This includes all loans made under the Federal William D. Ford Direct Lending Program (Direct Loans) and certain loans made under the Federal Family Education Loan Program (FFELP). The interest waiver fixes the interest rate at zero for the duration of the payment break.
The U.S. Department of Education announced its eighth extension on Nov. 22, 2022. The payment pause and interest relief is now set to expire in 2023, 60 days after the resolution of lawsuits challenging the government’s student loan forgiveness plan. President Biden or June 30, 2023, whichever comes next. first.
Students and borrowing parents will have several options for financial assistance after the payment pause and interest relief ends.
It is important to speak to the loan officer about your options a few weeks before the end of the payment pause and interest relief, to ensure that your loans will be placed in the right option for you. (Even if you plan to start payments again, you must contact the loan service to update your bank account information if you signed up for AutoPay, where your monthly loan payments are automatically transferred to the lender.)
Deferrals and Forbearances for Federal Student Loans
Postponement in case of economic difficulties. Borrowers are eligible for postponement of economic difficulties whether they receive public assistance (for example, TANF, SSI, SNAP, and general state public assistance), volunteer for the Peace Corps, or work full-time and earn less than the federal minimum wage ( $7.25 per hour) or the borrower’s income is more than 150% below the poverty line.
Postponement of unemployment. Borrowers are eligible for report of unemployment if they receive unemployment benefits. They are also eligible if they are unemployed and looking for full-time employment. Borrowers must not have turned down any full-time employment, even if they are overqualified for the position.
Abstention. A general tolerance is provided at the discretion of the loan officer. General forbearances are generally granted when the borrower is in financial difficulty. A compulsory abstention is also available to borrowers whose student loan repayments exceed 20% of their gross monthly income.
Borrowers are not required to make payments during deferrals and forbearances. Deferments and abstentions are available for up to 3 years each. The federal government pays interest on subsidized federal loans during a deferral, but not on unsubsidized loans. The federal government does not pay interest on either type of loan during a forbearance. If interest is not paid as it accrues, it will be added to the (funded) loan balance at the end of the deferment or forbearance period.
Borrowers still in school will be able to benefit from a school deferment as long as they are enrolled at least half-time. After graduating or dropping below half time, they will be eligible for a 6 month grace period before the refund begins.
Income-Based Repayment for Federal Student Loans
Another financial aid option is an income-driven repayment plan.
If the borrower’s income is below 150% of the poverty line, their monthly loan payment will be zero under the income-based compensation (IBR), pay-as-you-go (PAYE) and pay-as-you-go (REIMBURSEMENT) reimbursement plans. If the borrower’s income is below 100% of the poverty line, their monthly loan payment will be zero under the Income Contingent Repayment (ICR) plan.
If your income has changed, you can ask the loan servicer to recertify your income before the annual recertification date.
The federal government pays accrued but unpaid interest on subsidized loans during the first three years under the IBR, PAYE and REPAYE. The federal government pays half of accrued but unpaid interest on subsidized loans for the remainder of the repayment term under RPAYE.
The federal government pays half of accrued but unpaid interest on unsubsidized loans for the entire repayment term under REPAYE.
Fresh Start Program
The Fresh Start program is a new program that offers some relief to borrowers who defaulted on their federal student loans before the pandemic. Under the new program, a borrower’s eligibility for Federal Student Aid (including Federal Pell Grants and Federal Work-Study) will be restored. Additionally, borrowers have one year after the student loan payment pause ends (i.e. in 2024) to enroll in a repayment plan, including the option of repayment based on the revenue. Additional program details can be found at U.S. Department of Education – Federal Student Aid.
Options for Private Student Loans
Private student loans are not eligible for the payment pause and interest waiver. However, most lenders have programs available to help you if you are having difficulty making your payments. Contact your lender or loan officer to explore your options if you have or will have difficulty repaying your private student loans.