By: Jennifer Edwards (Candidate for CFP®, CSLP®)
On August 8th, the CARES Act federal student loan administrative forbearance was extended through December 31, 2020. Prior to that, it was set to expire on September 30th. What does that mean for you? Let’s review some key points.
If you wish to make payments on your federal student loans before December 31st, you will need to contact your servicer to arrange that. You can choose to make automatic payments as scheduled before the forbearance went into effect or you can make manual payments of whatever amount and at whatever time interval you wish.
If you are in any of the Income-Driven repayment plans (ICR, IBR, PAYE, REPAYE) it is generally not a good idea to continue paying at this time. If you have any accrued interest, which is likely to be the case, you would only be lowering the amount of forgiveness you receive when your term ends. Since this is a time of great economic uncertainty, the skipped payments may be better applied toward emergency savings, other higher interest rate debt, retirement accounts, etc. If you are in a traditionally amortized repayment plan like the Standard 10 Year, this may be an excellent time to decrease the principal and thus the total interest paid on your loans. If you are a current 3rd Decade participant, contact your mentor if you have any questions about what would be best for you.
For those in Public Student Loan Forgiveness, even if no payments are being made, these months of forbearance ARE counting toward the required 120 payments for the Public Service Loan Forgiveness program and the required term for all IDR plans. You must continue to be employed full time by a qualified employer. It is most likely the best course of action for all in PSLF to redirect funds previously allocated to their federal loans to other goals.
If you are scheduled to recertify your income between now and the end of the year, that recertification deadline has been extended to no sooner than January 1st, 2021. You will be notified of your new recertification date before it is time to recertify. Make sure your servicer has your current contact information.
For those who are coming out of their grace period before December 31st, you will receive the administrative forbearance and all your loans (not just the subsidized ones) will not be charged any interest for any period after your loans enter repayment between March 13, 2020, and December 31, 2020.
Some Federal Family Education Loans (FFEL) loans are privately held and do not benefit from this forbearance. If you have FFEL loans or Perkins loans that are not owned by the Department of Education, you may be able to consolidate them into a Direct Consolidation loan, but the terms will change permanently and apply after the forbearance ends.
Here is a link to the official information provided by the Department of Education. We will try to keep you informed, but it would be wise to check regularly for updates.