EDITORS' PICK|398,346 views|Aug 21, 2020,08:12pm EDT

Federal Student Loan Payments Officially Suspended Until 2021: 0% Interest, No Collections, And Nonpayments Count Toward Forgiveness

Rob BergerSenior Contributor

Personal Finance

I write about building wealth and achieving financial freedom.

Student loan relief

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U.S. Secretary of Education Betsy DeVos today implemented President Trump’s memorandum extending relief on federally held student loans to borrowers through the end of the year. Her actions also addresses collections on defaulted loans and whether non-payments during this time will qualify for forgiveness under an income-driven repayment plan or the Public Service Loan Forgiveness program.

Here’s what we know.

Presidential Memorandum on Student Loan Relief

The CARES Act passed earlier this year suspends payments on federally held student loans until September 30, 2020. During this time, collections on defaulted loans were halted, and the non-payments counted toward the 120 payments required by the Public Service Loan Forgiveness (PSLF) program and as payments required for other forgiveness under an income-drive repayment plan.

With uncertainties surrounding negotiations of another stimulus bill, Mr. Trump signed an Executive Memorandum on August 8 related to student loan relief. The memorandum directed Secretary DeVos to “provide such deferments to borrowers as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”

Of concern to many was whether this action would also cover the suspension of collection efforts and how non-payments would be treated for purposes of various loan forgiveness programs.

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Secretary DeVos Fully Implements Student Loan Payment Suspension

Today Secretary DeVos announced that she has fully implemented Mr. Trump’s directive. Specifically, she has directed Federal Student Aid (FSA) “to extend the student loan relief to borrowers initiated by the President and Secretary in March 2020 through December 31, 2020.” Interest on eligible federal student loans has also been set to 0% during this time: “All borrowers with federally held student loans will have their payments automatically suspended until 2021 without penalty. In addition, the interest rate on all federally held student loans will be set to 0% through the end of the calendar year.”

Borrowers have the option to continue making payments during this time. Such payments would be allocated to the principal of the loan, enabling borrowers to pay off their loans more quickly and at a lower cost.

Federal Student Loan Collection Actions

Secretary DeVos also announced that collections on defaulted, federally held loans will continue to be halted. In addition, any borrower with eligible federal student loans whose wages are being garnished will receive a refund of those amounts. The full statement on this issue reads:

“During this extended time frame for the payment suspension, collections on defaulted, federally held loans are still halted, and any borrower with defaulted federally held loans whose employer continues to garnish their wages will receive a refund of those garnishments.”

Non-payment of Student Loans Counts Toward Forgiveness

One significant uncertainty was how Mr. Trump’s executive action would affect those pursing loan forgiveness programs. The action today makes clear that non-payments will continue to count toward these programs:

“Non-payments by borrowers working full-time for qualifying employers will count toward the 120 payments required by the Public Service Loan Forgiveness program and as payments that are required to receive forgiveness under an income-driven repayment plan.”

FSA is working with student loan servicers to notify borrowers of the extension of this relief. The notice states that the outreach program will continue into the fall and to an eventual return to student loan repayment. Borrowers should see this new extension reflected in their accounts over the next several weeks.

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Rob Berger

Rob is the Deputy Editor of Forbes Money Advisor, host of the Financial Freedom Show, and the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of…Read More

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(https://autoadmit.com/thread.php?thread_id=4609153&forum_id=2#40799509)

Lmao at my deal. My shitlaw boss paid mine off for me and I owe him an interest free loan payback. It was his incentive to keep me.

(https://autoadmit.com/thread.php?thread_id=4609153&forum_id=2#40799548)

Fun fact he also told me that the firm the kid making $80k at is not going to exist in two years. Almost exactly at the two year make they dissolved the firm and he’s working a non law boring job making probably $80k. Last year my AGI was over $400k.

(https://autoadmit.com/thread.php?thread_id=4609153&forum_id=2#40799630)

Student loans are on a one way ratchet to zero payback barring some insane changes in political reality.

(https://autoadmit.com/thread.php?thread_id=4609153&forum_id=2#40800479)

Is this common for old fucks like me who graduated and consolidated in 2006 or earlier - before the government became the direct lender on all federal loans? Or did I just get fucked when they switched services?

(https://autoadmit.com/thread.php?thread_id=4609153&forum_id=2#40800582)

180

(https://autoadmit.com/thread.php?thread_id=4609153&forum_id=2#40804979)