November 2, 2020

What Happens When The Student Loan Payment Pause Ends?

What Happens When The Student Loan Payment Pause Ends?


Federal education loans held by the U.S. Department of Education are eligible for an automatic payment pause and interest waiver, which has been extended through December 31, 2020. Will the payment pause be extended again? What happens to student loans when the payment pause ends?

What Is the Payment Pause and Interest Waiver?

President Trump announced a 60-day payment pause and interest waiver for certain federal student loans on March 13, 2020.

The CARES Act, which was signed into law on March 27, 2020, automatically suspending repayment and setting the interest rate to zero on eligible loans through September 30, 2020.

President Trump signed an executive order on August 8, 2020, directing Secretary DeVos to extend the payment pause and interest waiver through December 31, 2020.  

Which Federal Loans Are Eligible for the Payment Pause and Interest Waiver?

Only loans that are held by the U.S. Department of Education are eligible. This includes the following loans:

  • All federal education loans in the Direct Loans program
  • Federal loans made in the FFEL program in 2008-09 and 2009-10 under the Ensuring Continued Access to Student Loans Act (ECASLA) for which title was transferred to the U.S. Department of Education
  • Federal Perkins Loans that were assigned by the college to the U.S. Department of Education

Commercially-held FFEL program loans and Federal Perkins Loans that are held by the colleges are not eligible for the payment pause and interest waiver. Private student loans and private parent loans are not eligible.

Will the Payment Pause and Interest Waiver Be Extended Again?

When President Trump announced the extension of the payment pause and interest waiver to December 31, 2020, he said that he might extend it further. The signing statement was “Today I’m extending this policy through the end of the year, and we’ll extend it further than that, most likely right after Dec. 1.”

The executive order itself didn’t mention anything about further extensions, however, nor did the U.S. Department of Education’s press release

The Heroes Act, which was introduced in the House on May 12, 2020 and passed the House on Mary 15, 2020, extends the payment pause and interest waiver through September 30, 2021. This legislation demonstrates bipartisan support for an extension to the payment pause and interest waiver.

However, the Heroes Act is stalled in the Senate and it is unclear if an extension to the payment pause will be enacted during the lame duck.

What Happens If the Payment Pause Is Not Extended?

Millions of borrowers may experience financial difficulty if the payment pause and interest waiver is not extended.

If the payment pause and interest waiver is not extended, the loan servicers will send letters and other communications to the borrowers to let them know that repayment will begin again on January 1, 2021.

Borrowers who were signed up for AutoPay, where monthly loan payments are automatically transferred from their bank account to the lender, will probably have to sign up again. After all, the lender will need confirmation that the borrower’s bank account information is still valid.

If a borrower is unemployed or experienced a pay cut, they may be unable to begin repaying their student loans again. Borrowers who graduated recently or who dropped out of college are more likely to have been affected.

There are a few options for continuing to suspend repayment after the end of the payment pause. These include the unemployment deferment, economic hardship deferment and forbearances. Each of these options has a three-year limit.

The federal government pays the interest on subsidized loans during a deferment but not during a forbearance. The interest on unsubsidized loans remains the responsibility of the borrower during both a deferment and a forbearance. If the interest is not paid as it accrues, it is added to the loan balance at the end of the deferment or forbearance period.  

Borrowers who are struggling to repay their federal student loans can also switch into an income-driven repayment plan, which bases the monthly payment on a percentage of the borrower’s income, as opposed to the amount they owe. If the borrower’s income is less than 150% of the poverty line, their monthly loan payment is zero.

The federal government pays the accrued but unpaid interest on subsidized loans during the first three years of the IBR, PAYE and REPAYE repayment plans, and half of the accrued but unpaid interest on unsubsidized loans. During the remainder of the repayment term, the federal government pays half of the accrued but unpaid interest on all federal student loans in the REPAYE repayment plan.



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