Here’s How Student Loan Payments Suspended for COVID-19 Can Still Count Toward Loan Forgiveness in 2020

The Coronavirus Aid, Relief and Economic Security (CARES) Act includes provisions designed to provide relief to federal student loan borrowers. This landmark bill includes six months of student debt relief by suspending payments and providing 0% interest through September 30, 2020, for federally held student loans. President Trump and President Biden both extended this pause all the way until August 30, 2023, unless courts rule on student loan relief lawsuits sooner.

While most borrowers will benefit from these relief measures, millions of borrowers were left out in the cold, including those with loans held by a commercial lender under the Federal Family Education Loan Program (FFELP) and borrowers with Department of Health student loans. Countless borrowers who have private student loans that won’t receive help from the government either.

But borrowers seeking loan forgiveness with the Public Service Loan Forgiveness (PSLF) program or under an income-driven repayment (IDR) plan scored an extra bonus. Each suspended payment, or nonpayment, during the time frame specified in the CARES Act will count toward forgiveness.

How does COVID-19 affect student loan forgiveness programs?

According to the Consumer Financial Protection Bureau, “suspended payments will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met.”

This means even if you aren’t making a monthly payment, you’ll still receive credit as if you are. Think of it as a $0 qualifying payment.

For instance, let’s say you’re a physician working toward PSLF. The six months of payments for mid-March through September will count toward the 120 payments you need to qualify for forgiveness.

Keep in mind the PSLF program requires that you have Direct Loans that are enrolled in an IDR plan. And monthly payments must be made while working full time for a qualifying employer like a government entity or nonprofit organization.

Suspended payments also apply to your forgiveness count if you’re on an IDR forgiveness plan. But you’ll need to make 20-25 years’ worth of qualifying payments to be eligible for loan forgiveness.

These coronavirus student loan forgiveness credits can save you a nice chunk of cash, regardless of which forgiveness path you’re pursuing. This benefit is important because freed up money may be needed elsewhere if your family’s income has been impacted by this pandemic.

Are these benefits automatic?

The Department of Education initiated an automatic administrative forbearance for all qualifying loans. But you can opt out of the forbearance or choose to continue making whatever payments you can if you want to pay down your balance.

You should consider continuing making payments if you aren’t pursuing forgiveness to take advantage of the 0% interest rate and then explore refinancing options once these relief measures expire.

If you are pursuing forgiveness, there’s no reason to make payments during this relief period because each suspended payment counts toward your overall loan forgiveness payment count. By taking advantage of this forbearance period, you can use those funds to pay immediate bills, pad your emergency fund or max out your retirement account.

Request a refund if you’re pursuing loan forgiveness

Initially, loan servicers were scrambling to implement these unprecedented directives. So, many borrowers either made their March student loan payment as scheduled or had their account auto-drafted.

But even though the CARES Act was signed into law on March 27, the outlined student loan relief measures are retroactive to March 13.

If a payment was made between March 13 and September 30, you can request a refund. And you absolutely should if you're working toward student loan forgiveness.

To request a refund, contact your loan servicer directly. Even though phone lines were jammed in recent weeks, it can only take a few minutes to reach a representative and request a refund.

Keep in mind that processing times for refunds may be several weeks. But eventually, your refund will make its way to you.

Common questions for student loan forgiveness payments during COVID-19

Here are answers to some of the most common questions related to payments and student loan forgiveness in 2020.

Can I consolidate my loans to access coronavirus student loan benefits?

You can consolidate your FFEL or Federal Perkins loans that aren’t owned by the Department of Education into a Direct Consolidation Loan. The new loan would then be eligible for 0% interest and payment suspension. But be aware that any outstanding interest will capitalize and increase your principal balance. Moreover, your interest rate could end up being higher than what you’re currently paying.

Does consolidation affect student loan forgiveness?

You’ll lose all credit toward forgiveness when you consolidate a student loan. So, consolidation may not be in your best interest if you have FFEL loans with years of income-based repayment credit.

Do I need to do anything if my payments are auto-debited?

If your student loans are set up on autopay, you shouldn’t have to do anything to suspend your payments. Your automatic payments should resume when the forbearance period ends. Your loan servicer will begin notifying borrowers of upcoming payments as the date approaches for the end of the CARES Act relief period.

How is my payment applied during the administrative forbearance period?

If you choose to make a payment between March 13 and September 30, your full payment will be applied to your principal, but only after the accrued interest is paid off.

Check out the Federal Student Aid website for a continuously updated list of student and borrower questions.

Additional student debt relief

If your loans didn’t qualify for benefits under the CARES Act, contact your lender to discuss relief options. Many lenders are offering three months or more of paused payments.

You can also apply to enroll in an IDR plan so you can take advantage of the free forgiveness credits and reduce your monthly payment when required payments resume.

Additionally, certain higher education groups are calling for the government to extend current relief measures and expand borrower benefits. For example, the American Council of Education, which includes more than 30 other higher education groups, has requested that Congress extend CARES Act student loan benefits to at least June 2021 or until unemployment falls below 8% for three consecutive months. These and other proposals are just requests at this time, but they show that the discussion around student loan borrower relief isn’t going to be over anytime soon.