The Federal Student Loan Payment Pause Extended to January 31

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December 7, 2020

On Friday, December 4th, the Department of Education announced that the payment pause and interest waiver on federal student loans will be extended through January 31, 2021. The payment pause was originally set to expire at the end of this year, on December 31st

On March 13, 2020, President Trump originally announced a 60-day payment pause and interest waiver for government-held federal student loans in an effort to help ease any financial burden caused by the Coronavirus pandemic.

More than a month before the payment pause and interest waiver was set to expire, President Trump extended it through the end of the year. Currently, the pause is now extended one more month.

The payment pause and interest waiver automatically suspends the payments for federal education loans held by the U.S. Department of Education and sets the interest rate temporarily to zero. This means loans are not accruing interest during this period. 

In addition, student loan debt collection is paused as well.

Approximately 90% of federal student loan borrowers have taken advantage of this payment pause. 

Eligible loans include all federal student and parent loans in the Direct Loan program and some ECASLA loans. ECASLA loans are guaranteed student loans made in the Federal Family Education Loan Program (FFELP) in 2008-09 and 2009-10 under the Ensuring Continued Access to Student Loans Act. Lenders transferred title to many of the ECASLA loans to the U.S. Department of Education. 

Commercially-held FFELP loans are not eligible. Borrowers with ineligible FFELP loans can make them eligible by including them in a Federal Direct Consolidation Loan. Private student loans and private parent loans are not eligible, even if they refinanced federal loans. 

What Happens When the Payment Pause is Over?

If a borrower is having difficulty making payments after the pause is over, there are still options.

Borrowers could consider alternate repayment plans like extended repayment and income-driven repayment.

Extended repayment reduces the loan payment by increasing the term of the loan. Increasing the repayment term from 10 years to 30 years can cut the monthly loan payment nearly in half. But, a longer repayment term can significantly increase the total interest paid over the life of the loan. 

The income-driven repayment plans base the loan payment on a percentage of the borrower’s income and family size. If the borrower’s income is less than 150% of the poverty line, the loan payment will be zero. 

There are four different income-driven repayment plans and each is slightly different.

Borrowers could apply for an Unemployment Deferment or an Economic Hardship Deferment as well. 

Eligibility for the unemployment deferment requires the borrower to be receiving unemployment benefits. Borrowers can also qualify if they are looking for full-time work, but unable to get a full-time job.

Eligibility for the economic hardship deferment requires the borrower to be receiving federal or state public assistance (e.g., TANF, SSI or SNAP), serving as a Peace Corps volunteer, working full time but earning less than the federal minimum wage, or working full time but earning less than 150% of the poverty line.

If a borrower is already in an income-driven repayment plan and their income has changed, they can ask the loan servicer to recertify their income early. 

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