If federal student loans are hanging over your head, you’ll no doubt see good news in the Student Debt Relief Plan / Student Loan Forgiveness proposed by the Biden administration.
That’s five-digit good news, as you may land up to $20,000 to pay off current eligible balances using the Loan Debt Forgiveness Plan.
But what if you’ve already paid off your loans? Can you get your money back for payments already made?
The answer is yes — but it depends on a few important factors.
Payments made during the COVID-19 payment relief measures are supposed to be refunded automatically but depending on who manages your loan, you should contact them and request a refund for all payments made after March 13, 2022. This is especially true if you owe under 10,000 dollars since that is the amount that will be forgiven for individuals earning under 125,000 dollars a year or married couples making under 250,000 dollars a year. If you received a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt cancellation.
Tip for Aidvantage customers: You can easily identify if you have federal student loans owned by ED on the Account Summary page after logging in to (or creating) your online account at Aidvantage.com. Payments made during the COVID-19 payment relief measures are refundable, please call Aidvantage at 800-722-1300 and get your money back before Dec 31, 2022.
On August 24, 2022, the U.S. Department of Education (ED) announced an extension of the student loan payment pause through December 31, 2022. This means that all borrowers with eligible student loans will continue to have their payments suspended through December 31, 2022, without penalty. In addition, the interest rate on all eligible student loans will continue to be set to 0% through December 31, 2022.
When did the 0% interest rate begin?
The 0% interest rate on eligible student loans has been in effect since March 13, 2020.
What loans will the 0% interest rate apply to?
The 0% interest rate applies to student loans owned by ED – including all Direct and ED-owned Federal Family Education Loan (FFEL) Program loans in any status (in repayment, in school, grace, deferment, forbearance, etc.).
If I make loan payments during the 0% interest period, how will they be applied?
During the period of 0% interest (March 13, 2020 through December 31, 2022), the full amount of your payments will be applied to principal once you’ve paid all the interest that accrued prior to March 13, 2020.
Are private education loans eligible?
No, they are not covered by the CARES Act and extensions of relief provided by ED.
How long is it in effect?
The 0% interest rate will remain in effect through December 31, 2022.
Do I need to do anything to get the 0% interest rate if I have eligible loans?
No action is required to receive the 0% interest rate if you have eligible loans.
What happens if I consolidate during the 0% interest rate period?
A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The fixed rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent. There is no cap on the interest rate of a Direct Consolidation Loan. They will certify the loans for consolidation using the statutory rate. Once the consolidation is complete before December 31, 2022, the new consolidated loan will be placed at the 0% rate.
Emergency Payment Pause Was the payment pause extended? What does this mean for me?
On August 24, 2022, ED announced an extension of the student loan payment pause through December 31, 2022. This means that all borrowers with eligible student loans will continue to have their payments paused through December 31, 2022 without penalty. In addition, the interest rate on all eligible student loans will continue to be set to 0% through December 31, 2022.
What loans does this payment pause apply to?
This payment pause applies to student loans owned by ED – including all Direct and ED-owned Federal Family Education Loan (FFEL) Program loans in repayment.
What if I exit my grace period during the payment pause?
Your loan payments will be suspended, and your interest rate will remain at 0% until the end of the COVID-19 emergency relief period. For example, say your loans entered repayment after the end of your grace period on April 15, 2022. In this case, your payments would be suspended from April 15, 2022, through the end of the COVID-19 emergency relief period. The interest rate on your loans would be 0% during this period. Interest is usually added to your balance when your grace period ends or at the end of a deferment or forbearance. But because of COVID-19 relief, interest won’t be added during the relief period in most cases. Your interest will capitalize only if you consolidate your federal student loans. Any interest capitalization that has an effective date after March 13, 2020, has been removed. You will receive a notification If you have had your interest removed.
Will I be responsible for interest that accrues during this payment pause?
No interest is accruing because the interest rate is 0% through the end of the payment pause. The COVID-19 payment pause is a non-capitalizing forbearance. Under the relief measures for the COVID-19 emergency, unpaid interest will not capitalize (that is, be added to your principal balance) during the payment pause and through June 30, 2023, six months after the payment pause is scheduled to end. Your interest will capitalize only if you consolidate your federal student loans. We will reverse and delay any interest capitalization that has an effective date of March 13, 2020 through June 30, 2023.
Will my loans be reported negatively to the credit bureaus because of this payment pause?
No. During the COVID-19 payment pause, eligible loans will be reported as if regularly scheduled payments had been made by the borrower. This reporting is similar to borrowers enrolled in income-driven repayment (IDR) with a $0 payment. Keep in mind that delinquency reported prior to the COVID-19 emergency relief period will remain on your credit report.
How will this payment pause affect my progress toward loan forgiveness?
Paused payments count toward Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) forgiveness as long as you meet all other qualifications. You will receive credit as though you made on-time monthly payments in the correct amount while on a qualifying repayment plan.
I submitted a PSLF form in the last year, and my federal student loan servicer was not FedLoan Servicing (PHEAA) or MOHELA. What’s the status of my transfer and PSLF form?
When the COVID-19 emergency relief began in 2020, ED stopped certain loan transfers from other servicers to the PSLF Servicer, FedLoan Servicing. Starting July 1, 2022, MOHELA is the PSLF Servicer. Since then, ED has instructed its servicers to resume transfer activity, including transferring borrower accounts to MOHELA. The transfer of account information can be slow, but we expect this process to be complete in the next few months. You can still receive payment credit toward PSLF during this time, no matter who your servicer is or how long it takes to process these transfers. However, you still must verify employment for these periods of time in order to receive qualifying payment credit. Your new federal loan servicer, MOHELA, will contact you after your loans have been fully loaded into its system. At that point, MOHELA will assist you with your account and the PSLF program going forward.
What if my income was impacted by COVID-19? Has your income changed significantly?
You can apply for an income-driven repayment (IDR) plan at StudentAid.gov/idr. If approved, your payments due under the IDR payment plan will begin after the payment pause ends. If you’re already on an IDR Plan, you may want to recertify early and get a new payment amount based on your current income. To do so, follow these steps: 1. StudentAid.gov/idr. 2. Select “Apply Now.” 3. Start the application by selecting the button next to “Recalculate my monthly payment.” My income-driven repayment (IDR) recertification date is coming up soon.
Will the COVID-19 relief extend my deadline?
You will not have to recertify your income before the end of the COVID-19 emergency relief period, even if your recertification date would have happened prior to the end of the relief period. As part of the payment pause, your recertification date has been pushed out from your original recertification date. IDR recertifications are now due no earlier than March 1, 2023. IDR Plan annual recertification due dates occurring before March 1, 2023, are all now being pushed out by one year. For example, if your IDR recertification was due on October 1, 2022, the new recertification date is October 1, 2023. You will be notified of your new recertification date before it is time to recertify. Update your contact information if you have moved, changed phone numbers, or have a new email address.
If I enter IDR during the payment pause, will my payments automatically remain paused? Will those months count toward IDR forgiveness?
Yes, your payments will remain paused; and yes, the months will count toward IDR forgiveness.
Will this payment pause count against my voluntary forbearance time?
No.
Can I make payments during this payment pause?
If you owe over 10,000 dollars making payments during the COVID-19 emergency relief period could allow you to make progress on paying down your unpaid principal – which could reduce the overall cost of your loan. Your payments would be applied first toward the unpaid interest accrued prior to March 13, 2020, and the remainder is applied to the unpaid principal. You can continue to make payments at any time by logging in to your account, by phone, by mail, or through your bank’s bill payer service (Auto Pay is not available during the payment pause). If you choose to remain in the administrative forbearance (payment pause) and make payments, you will not receive a monthly bill.
What if I want to continue making a partial payment while my loan is in the payment pause?
As long as you are on the payment pause, you will not be penalized for making a payment that is less than your usual monthly payment. You still have the option to make a payment on your loan to make progress toward reducing your balance. You can continue to make payments at any time by logging in to your account, by phone, by mail, or through your bank’s bill payer service (Auto Pay is not available during the payment pause).
If I consolidate into a Direct Consolidation Loan during the payment pause, will my new consolidation loan automatically have payments paused?
Yes. However, consolidation can sometimes result in a higher interest rate. You may find that your rate is higher than what you paid previously once the 0% interest rate period ends. In addition, when you consolidate, any unpaid interest will capitalize (be added to your principal balance).
How does consolidation affect my credit toward loan forgiveness?
If you consolidate, you will lose credit for any qualifying IDR payments you may have previously made. Under normal rules, you would also lose credit toward Public Service Loan Forgiveness (PSLF); however. on October 6, 2021, the Department of Education announced a limited-time change to the PSLF program rules that may allow you to get credit for past periods of repayment on loans that wouldn’t normally qualify for PSLF by consolidating them into a Direct Consolidation Loan. After the limited PSLF waiver period ends, if you made any qualifying payments toward PSLF on your existing federal student loans, consolidating these loans after October 31, 2022, will reset the payment count to zero and you will need to make 120 more qualifying payments after consolidation. To learn more about the limited PSLF waiver and any action you may need to take to benefit from it, visit StudentAid.gov/pslfwaiver.
Questions about defaulted loans? Please visit StudentAid.gov/coronavirus for information.
The page includes information for students, borrowers, and parents about the student loan forgiveness program and payment pause. These relief measures are available to student loan borrowers with federal student loans owned by the U.S. Department of Education. Please visit the page regularly for updates. If you’re unsure of who owns your loan, go to your Loan Details for each loan and scroll to the bottom to find the Current Owner. Federal student loan flexibilities for the COVID-19 emergency have been extended through December 31, 2022.
