September 23, 2021 By Mark Kantrowitz

Options for Financial Relief After the End of the Payment Pause and Interest Waiver

The student loan payment pause and interest waiver will eventually end. When it does, what options are available for financial relief if you have not yet got a job and are still struggling to repay your student loans?

When Do Student Loan Payments Resume?

The payment pause and interest waiver, which began on March 13, 2020, suspends the repayment obligation on federal student loans held by the U.S. Department of Education. This includes all loans made under the William D. Ford Federal Direct Loan Program (Direct Loans) and some loans made under the Federal Family Education Loan Program (FFELP). The interest waiver sets the interest rate to zero for the duration of the payment pause.

After four extensions, the payment pause and interest waiver is currently set to expire on January 30, 2022. The U.S. Department of Education has referred to the most recent extension as the “final” extension, so there are unlikely to be any further extensions.

Student and parent borrowers will have several options for financial relief after the payment pause and interest waiver ends.

It is important to talk to the loan servicer about your options a few weeks before the end of the payment pause and interest waiver, to make sure your loans will be placed in the right option for you. (Even if you plan on restarting payments, you should contact the loan servicer to update your bank account information if you signed up for AutoPay, where your monthly loan payments are automatically transferred to the lender.)

Deferments and Forbearances for Federal Student Loans

Economic Hardship Deferment. Borrowers are eligible for the economic hardship deferment if they are receiving public assistance (e.g., TANF, SSI, SNAP and state general public assistance), volunteering for the Peace Corps, or working full time and earning less than the federal minimum wage ($7.25 per hour) or the borrower’s income is less than 150% of the poverty line.

Unemployment Deferment. Borrowers are eligible for the unemployment deferment if they are receiving unemployment benefits. They are also eligible if they are unemployed and looking for a full-time job. Borrowers must not have turned down any full-time job, even if they are overqualified for the position.

Forbearance. A general forbearance is provided at the discretion of the loan servicer. General forbearances are typically provided when the borrower is experiencing financial hardship. A mandatory forbearance is also available for borrowers whose student loan payments exceed 20% of their gross monthly income.

Borrowers are not required to make payments during deferments and forbearances. Deferments and forbearances are available for up to 3 years each. The federal government pays the interest on subsidized federal loans during a deferment, but not on unsubsidized loans. The federal government does not pay the interest on either type of loan during a forbearance. If interest is not paid as it accrues, it will be added to the loan balance (capitalized) at the end of the deferment or forbearance period.

Borrowers who are still in school will be eligible for an in-school deferment for as long as they are enrolled on at least a half-time basis. After they graduate or drop below half-time enrollment, they will be eligible for a 6-month grace period before repayment begins.

Income-Driven Repayment for Federal Student Loans

There is another option for financial relief, which is an income-driven repayment plan.

If the borrower’s income is less than 150% of the poverty line, their monthly loan payment will be zero under the income-based (IBR), pay-as-you-earn (PAYE) and revised pay-as-you-earn (REPAYE) repayment plans. If the borrower’s income is less than 100% of the poverty line, their monthly loan payment will be zero under the income-contingent (ICR) repayment plan.

If your income has changed, you can ask the loan servicer to recertify their income before the annual certification date.

The federal government pays the accrued but unpaid interest on subsidized loans during the first three years under IBR, PAYE and REPAYE. The federal government pays half of the accrued but unpaid interest on subsidized loans during the remainder of the repayment term under REPAYE.

The federal government pays half of the accrued but unpaid interest on unsubsidized loans for the entire repayment term under REPAYE.

Options for Private Student Loans

Private student loans are not eligible for the payment pause and interest waiver. However, most lenders have programs available to assist you if you’re having difficulty making your payments. Contact your lender or loan servicer to explore your options if you are or will be struggling to repay your private student loans.