Loan payment

How Pausing Student Loan Payments Can Help Forgive

On the first day of his term, President Biden extended the suspension of payments and interest on student loans held by the federal government until September. This relief has been in place since March 2020 due to the coronavirus pandemic.

Yet many advocates were unhappy that the loan cancellation was not granted. Biden backed a plan to provide $ 10,000 in student debt cancellation as a form of economic stimulus and relief, but this was not included in his relief proposal.

But there is a silver lining to the student loan payment hiatus for at least some student borrowers who request loan forgiveness under two existing loan forgiveness programs: income-based repayment and loan forgiveness. for the public service.

The federal government offers a number of income-based repayment plans that limit the amount a student borrower pays each month based on their income. If a borrower’s income is low enough, they may be eligible for payments of $ 0.

After 20 years of paying under an income-based repayment plan, their balance is written off. Low payments offer relief to borrowers who may face short-term economic hardship. And forgiveness helps them if their higher education never got them into a job with enough pay to pay off their loans.

Likewise, the federal government has implemented the Public Service Loan Forgiveness (PSLF) program to reward those who choose to work in the public service, often forgoing higher wages to do so. After 10 years of repayment in a qualifying repayment plan while working for a qualifying nonprofit or the government, borrowers can get their balance back.

The good news for these borrowers is that the months of non-payment on the payment break count towards their remission. Since payments have been on hold since mid-March 2020, that means the 19 months without payment will count toward the required number of payments, essentially giving them more discount.

For example, a PSLF borrower would only have to make 101 payments compared to 120, or a 16% reduction in the number of payments. Depending on the amount they are normally required to pay, this could amount to a much larger amount of rebate received.

Borrowers who do not participate in these programs and choose to take advantage of the payment break will not be so lucky. Although they have no accrued interest and are temporarily released from payments, a borrower under the standard 10-year repayment plan would still make 120 payments, a bit longer.