What happens when the student loan payment break ends?


img

Federal Education Loans from the US Department of Education are eligible for an automatic payment break and interest waiver, which has been extended through December 31, 2020. Will the payment break renew again? What will happen to student grants when the payment break ends?

What is the payment break and interest exemption?

President Trump announced a 60-day payment break 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 suspends repayment and sets the interest rate for eligible loans to zero through September 30, 2020.

President Trump signed an executive order on August 8, 2020, to which he sent Secretary DeVos extend the payment break and interest waiver until December 31, 2020.

Which federal loans qualify for the payment break and interest waiver?

Only loans held by the United States Department of Education are eligible. This includes the following loans:

  • All federal education loans in the Direct Loans program
  • Federal loans issued 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 United States Department of Education
  • Federal Perkins Loans Assigned by the University to the United States Department of Education

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

Will the payment break and the interest exemption be extended again?

When President Trump announced the extension of the payment hiatus and interest waiver until December 31, 2020, he said he might extend it further. The signing statement read, “Today, I am extending this policy through the end of the year, and we will continue to extend it, probably right after December 1.”

The executive order however, itself made no mention of further expansions, and neither did the United States Department of Education press release.

The Heroes Act, that was introduced in the House of Representatives on 12 May 2020 and successful House on Mary 15, 2020, extends the payment delay and interest waiver until September 30, 2021. This legislation demonstrates bipartisan support for an extension of the payment delay and interest waiver.

However, the Heroes Law is stuck in the Senate and it is unclear whether an extension of the payment break will be implemented during the lame duck.

What happens if the payment break is not extended?

Millions of borrowers could face financial difficulties if the payment break and interest waiver are not extended.

If the payment break and interest waiver are not renewed, the loan servicers will send letters and other messages to the borrowers letting them know that repayment will begin again on January 1, 2021.

Borrowers who have signed up for AutoPay, which automatically transfers monthly payments from their bank account to the lender, will likely have to sign up again. After all, the lender needs confirmation that the borrower’s bank account details are still valid.

If a borrower is unemployed or has had a pay cut, he may not be able to repay his student loans. Borrowers who have recently graduated or who have dropped out of college are more likely to experience its consequences.

There are a number of options to continue the repayment after the payment pause has expired. These include the postponement of unemployment, postponement of economic problems and tolerance. Each of these options has a three-year limit.

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

Borrowers struggling to repay their federal student loans can also switch to one 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, his monthly loan 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. For the remainder of the repayment term, the federal government will pay half of the accrued but unpaid interest on all federal student loans in REPAYE’s repayment plan.

This div height required for enabling the sticky sidebar