COVID-19 may affect student loan forgiveness more than you realize.
Here’s what you need to know.
Student Loan Forgiveness
More frequently, there are new proposals for student loan forgiveness. This includes proposals for student loan forgiveness for health care workers and presidential candidate Joe Biden’s plan to forgive student loan debt. Even members of Congress owe a significant amount of student loans. What about the two major existing plans for student loan forgiveness: income-driven repayment and public service loan forgiveness? Currently, if you are pursuing student loan forgiveness, you can enjoy several benefits for your federal student loans through September 30, 2020. Under the CARES Act – the $2.2 trillion financial stimulus package – federal student loan payments are paused and interest rates have been set to 0%. Importantly, make sure your federal student loans qualify. For example, FFELP loans and Perkins Loans won’t qualify for these benefits, since the U.S. Education Department doesn’t own these loans.
Non-payments ‘count’ as payments
Under the CARES Act, any non-payment of federal student loans during this period will still count toward student loan forgiveness. For student loan forgiveness through income-driven repayment, your non-payment will count toward your 20 or 25 years of required monthly payments to receive student loan forgiveness. For example, if you have paid your federal student loans for 15 years and make no monthly payments between March and September 2020, you will have completed 15.5 years for purposes of working toward student loan forgiveness. For public service loan forgiveness, any non-payment of your federal student loans during this period ‘counts’ toward the required 120 monthly payments. For example, if you have made 100 monthly payments and pause payments for all six months, then you will be credited for 106 monthly payments, which means you would need 14 more monthly payments.
You must be employed full-time
To qualify for public service loan forgiveness, you must be employed full-time and work at least 30 hours per week. What if you lose your job due to COVID-19? The good news is that you can still pause federal student loan payments through September 30. The bad news is that non-payment while you are unemployed may not count toward the required 120 monthly payments. While the CARES Act doesn’t explicitly prevent this, the program requires you to be employed. The silver lining is this: the 120 monthly payments do not need to be consecutive. So, if you become unemployed, your monthly payments will count again toward the 120 payments when you get a new job. Also make sure to submit an updated Employer Certification Form from you new employer to the U.S. Department of Education.
Re-certify your income if you lose your job
If you lose your job or have lower income due to COVID-19, you can re-certify your income to recalculate your monthly payment through an income-driven payment plan. Since payments for federal student loans are currently paused, your new monthly payment due to the re-certification will become effective after September 30. Student loan forgiveness through an income-driven repayment plan doesn’t require you to be employed. Therefore, if you lose your job and don’t make federal student loan payments during this period, you should still receive ‘credit’ toward your 20 or 25 years of payments. You also have the option to change your income-driven repayment plan.
This public service loan forgiveness calculator helps you compare IBR, PAYE, REPAYE and ICR to determine which income-driven repayment plan will maximize your student loan forgiveness. For public service loan forgiveness, remember that you must make a majority of your monthly payments while enrolled in an income-driven repayment plan.
Both student loan forgiveness programs are still active
There seems to be some confusion among borrowers whether student loan forgiveness is even possible. Some borrowers question whether student loan forgiveness will be cancelled while they are participating in the program. These are valid concerns. However, both student loan forgiveness programs are active. President Donald Trump has called for the end of the public service loan forgiveness program. However, Congress funds the program, and Congress has no immediate plans to end the program. Similarly, student loan forgiveness through income-driven repayment remains available and has support from both Congress and Trump. If any changes to either program occur in the future, then-current borrowers likely (although no guarantees) would be ‘grandfathered in,’ meaning they could still receive student loan forgiveness even if the opportunity becomes closed to new student loan borrowers.