You Can Now Pause Payments on Your Federal Student Loans for 2 Months
Wednesday, March 25, 2020
What Experts Say to Keep In Mind
Borrowers with federal student loans now have two options for relief if they suffer financial hardship from the coronavirus pandemic.
The Department of Education announced that all borrowers with federal loans will have their interest rates automatically set at 0% for at least 60 days, a measure first announced by President Donald Trump earlier this month. Now, borrowers with federal loans have the option to suspend payments completely for at least two months without accruing interest.
While the interest rate reduction is automatic, borrowers need to request the suspension of payment, called a forbearance, from their loan servicers online or by phone. This can help free up cash for other bills or financial obligations during the coronavirus crisis.
“This is something I’d highly recommend doing for people that have recently lost their jobs or have reduced working hours due to the national emergency,” Michael Bloch, CEO and found of Pillar, a personal finance app, tells CNBC Make It. “It’s the right thing to do if people are having trouble making ends meet.”
Call 1-800-4-FED-AID to talk to your servicer, or go this website for more information. A forbearance will not affect your credit score.
Typically, pausing payments costs a borrower more in the long run, because interest still accrues and is added to the loan’s principal balance. But if borrowers contact their lenders now, they will receive a few months of relief without accruing more interest. The forbearance period is retroactive to March 13, 2020.
Reassess Your Budget
That said, if you can make your payments, you still should, says Bloch.
“All federal student loans are temporarily accruing 0% interest,” he says. “This means that borrower’s payments will go further toward chipping away at the principal and getting them out of debt faster.”
This does not apply to private student loans. If you have private loans and are struggling, you should also reach out to your servicer and see if they can offer you relief.
The DOE is encouraging those seeking Public Service Loan Forgiveness (PSLF) to continue to make full payments so that they stay on track for forgiveness.
As the economic toll caused by the coronavirus escalates each day, it’s possible that the government will introduce other relief measures for borrowers. In the meantime, you can request forbearance.
“I’d encourage every borrower to take a close look at their budgets and see what makes the most sense for them to do,” says Bloch.