If you have federally held student loans, youâre getting a break on making payments â again.
On his first day in office, President Joe Biden signed an executive order directing the Education Department to extend its freeze on interest rates and payments for federally held student loans through Sept. 30, 2021.
Hereâs what you need to know.
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 â aka the CARES Act â passed in March 2020 to address economic issues due to COVID-19.
Directed by emergency legislation designed, the Department of Education 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 payments were suspended.
Then-President Donald Trump later signed an executive order to extend the administrative forbearance period until December 31, 2020, and the Secretary of Education extended those measures until Jan. 31, 2021.
Biden directed the extension yesterday amid a flurry of executive orders he signed on his first day in office.
What Loans Does This Legislation 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 happen to have Federal Family Education Loans (FFEL) and Perkins loans held by the federal government, theyâre covered, too. But the vast majority of those loans are commercially held, which makes them ineligible for the benefit.
What Does This Legislation Mean for My Student Loans?
There are four things to know about how administrative forbearance affects student loans through Sept. 30, 2021:
- It suspends loan payments.
- It stops collections on defaulted loans.
- It sets the interest rates to 0%.
- Each month of the suspension will count as a payment for the purpose of a loan forgiveness program.
Note that the suspension does not mean that the federal government is making your student loan payments for you â youâll just be free of making loan payments for eight months without accruing interest or incurring late fees during that period.
Biden did not, despite some hopes, forgive thousands of dollars in student loans in his initial executive orders. That request will need to go through Congress and faces opposition â which means if student loan balances are wiped out permanently, it wonât be for a while.
Here are five ways to know if you can benefit from the forbearance period.
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.
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