On December 22, 2021, President Biden directed the U.S. Department of Education to extend the coronavirus-related payment suspension and 0% interest rate on certain federal student loans for an additional 90 days. The payment suspension was due to expire at the end of January, but it is now extended to May 1, 2022.
Here’s what borrowers need to know about the extension:
The Department of Education’s webpage about coronavirus relief states that the terms of the relief will remain the same as the 2020 and 2021 payment extensions. This means the extension will continue to include the following terms:
- Covered loans: Relief will continue to apply only to Direct Loans and to any other federal student loans that are currently held by the Department of Education. This means that borrowers with commercially-held Federal Family Education Loans (FFEL) that are not in default and school-held Perkins Loans will not get relief on those loans under this action. (See info here on how to figure out whether your loans are owned by the Department.)
- Payment suspension: For covered loans, monthly payments will be automatically suspended through at least May 1, 2022. This means that borrowers will not be required to make payments, though borrowers who want to make payments during the suspension may do so.
- Temporary 0% interest rate: For covered loans, the temporary 0% interest rate will continue through at least May 1, 2022. This means interest is not being charged on covered loans during the suspension and borrowers’ balances should not grow during this time.
- Time in suspension counts toward IDR and PSLF Forgiveness: For borrowers enrolled in income-driven repayment plans (IDR), the months spent in the payment pause will count toward IDR loan forgiveness. The same goes for borrowers working toward Public Service Loan Forgiveness (PSLF): borrowers who otherwise meet PSLF requirements during the suspension will receive credit toward the forgiveness clock during the period of suspension.
- Extension on time to recertify: For borrowers enrolled in IDR, previous extensions of the payment suspension included pushing out the annual recertification deadline to at least the end of the suspension. This extension should work the same way: according to the Department’s website, the earliest borrowers might be required to recertify is August 2022. Borrowers in IDR should continue to check with their loan servicer and the Department of Education’s website to determine when it will be time to recertify their income. Borrowers can recertify at any time, so those who have experienced a decrease in income may recertify sooner to ensure that they have an affordable repayment amount when payments resume.
- Suspension of collection on defaulted loans: For covered loans that are in default, no collection activities should occur through at least May 1, 2022. This means there should be no collection calls, no wage garnishment, and no money taken out of borrowers’ tax refunds or Social Security benefits to collect on defaulted covered loans. Borrowers in default should consider filing their taxes early in 2022 to improve the chances that their tax refunds will be paid out before May 1 –and before any collection and refund seizures may occur.
- Time in suspension counts toward rehabilitation: For borrowers who enter into a rehabilitation agreement to get their covered loans out of default, suspended payments after the date of the agreement will count toward the required nine payments needed to rehabilitate a loan. Any borrowers who haven’t accrued nine months of qualifying suspended or required payments by the end of the payment suspension will have to begin making payments after the payment suspension ends to complete rehabilitation.
To access or make the most of this continued relief, here are a few actions borrowers with federal student loans might consider taking:
- Borrowers with privately-held FFEL and Perkins loans might consider consolidating into the Direct Loan program to be eligible for the payment suspension and interest pause, and other benefits afforded to Direct loan borrowers (e.g., lower IDR payments under the Revised Pay As You Earn plan). But there are serious potential downsides to consolidation, and some borrowers are not eligible to consolidate, so this is not a good idea or even a possibility for all borrowers. Borrowers can learn more about the pros, cons, and eligibility restrictions for consolidation here.
- Borrowers who are not currently in an income-driven repayment (IDR) plan should consider whether it makes sense to switch into an IDR plan so that the time in suspension counts towards eventual IDR loan forgiveness. Borrowers who do not want to switch to IDR might consider whether to make voluntary payments on their student loans now, even though payments aren’t required so that they can keep making progress toward paying off their loan and becoming student debt-free.
- Borrowers with loans in default should consider filing their taxes early in 2022 to improve their chances that any tax refunds they are entitled to will be paid before the payment pause ends–and thus before the Department may resume seizing tax refunds to collect on defaulted loans. Borrowers may also consider whether this is a good time to get out of default. More information about how to get out of default is available here.
