Need to know | 6 months suspension of student loan


The federal student loan payments will be suspended until September 30, 2020.

SACRAMENTO, California –

Millions of federal student loan borrowers now breathe a sigh of relief as they haven’t made payments for six months.

Under the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, payments for federal student loans are on hold until September 30, 2020. Interest is set at 0% on defaulted and non-defaulted direct loans, defaulted and non-defaulted Federal Family Education Loans (FFEL), and Federal Perkins Loans, according to Federal Student Aid, an office of the U.S. Department of Education.

“From the point of view of the Department of Education, they have a choice of either putting people in positions where they can’t pay and then we talk about defaults, defaults, debt collection agencies, or they can be kind and indulgent about the chance that they will later Get paid, “said David Lang, professor and chairman of the economics department at Sacramento State University.

Federal Loan Borrowers are automatically included in the “COVID-19-related Administrative Forbearance” but can still make payments.

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Lang said it was reasonable to defer student loan payments during the pandemic.

“The interest you pay is much lower than a credit card or any other loan you could get. So if you need to extend your loan payment a little in the future, this is not a crisis. Not being able to support your family or pay rent is a crisis, ”he said.

In an email to ABC10, the Ministry of Education announced that due to administrative forbearance, no interest will be capitalized. However, the individual situation of a borrower may include interest accrued prior to the start of the administrative deferral.

“Interest accrued before the non-capping, COVID-19-related administrative deferral can be capitalized after September 30, 2020 if the loan status – before the COVID-19-related administrative deferral – was either a deferral or a type The Department of Education said in an email, “The expiry of the COVID-19-related administrative forbearance could trigger a capping event depending on the borrower’s individual circumstances.”

Lang said that student loans are a large category and not all student loans are created equal in all institutions.

“Because of its diversity, there can be many different fine print, so individuals should definitely consider their own situation and read the fine print.”

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The Department of Education has highlighted several ways borrowers with different repayment statuses may be affected by COVID-19 from administrative forbearance once the suspension ends.

Example 1: The borrower is in a current repayment status before the COVID-19 administrative toleration was applied

  • The borrower owes $ 10,000 in principal and $ 2.50 in interest as of March 12, 2020.
  • The borrower will be placed in an administrative moratorium from March 13, 2020 to September 30, 2020 without limitation.
  • Due to the 0% interest rate, there is no interest from March 13th, 2020 to September 30th, 2020.
  • On October 1, 2020, the borrower owes $ 10,000 in principal and $ 2.50 in interest. There is no capitalization.

Example 2: The borrower is in arrears two months before the application of the COVID-19 administrative toleration

  • The borrower has failed to make their $ 100 payment due on January 21, 2020 or the $ 100 payment due on February 21, 2020.
  • The borrower owes a principal of $ 10,000 as of March 12, 2020 and interest of $ 73.25.
  • The borrower enters into an administrative moratorium from March 13, 2020 to September 30, 2020 without limitation. As part of this process, the ministry will apply an administrative deferral from January 21, 2020 to March 12, 2020 to resolve the earlier overdue.
  • Due to the 0% interest rate, there is no interest from March 13th, 2020 to September 30th, 2020.
  • On October 1, 2020, the borrower owes $ 10,000 principal and $ 73.25 in interest. There is no capitalization.

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Example 3: The borrower is in a postponement of unemployment before the administrative omission of COVID-19 is applied.

This postponement should cover the period from January 21, 2020 to July 21, 2020 (before the end of the COVID-19-related administrative omission).

  • Had the COVID-19 emergency not occurred, this borrower’s interest would have been capitalized at the end of the deferral on July 22, 2020.
  • The borrower owes a principal of $ 10,000 as of March 12, 2020 and interest of $ 73.25. The $ 73.25 is interest accrued during the grace period through March 12, 2020.
  • The borrower enters into an administrative moratorium without a cap from March 13, 2020 to September 30, 2020. The ministry is shortening the unemployment deferral until March 12, 2020; the postponement of unemployment is being replaced by the COVID-19-related administrative leniency.
  • Due to the 0% interest rate, there is no interest from March 13th, 2020 to September 30th, 2020.
  • The activation previously carried out at the end of the deferral of unemployment (on July 22, 2020) will be postponed until the end of the administrative deferral period.
  • On October 1, 2020, the borrower owes $ 10,073.25 principal and $ 0.00 interest. The activation took place due to the end of the deferral period, but at a later point in time than if the deferral had not been applied.

Example 4: The borrower is in a hardship postponement prior to the application of the COVID-19 suspension.

This postponement should cover the period from January 21, 2020 to January 21, 2021 (will end after the COVID-19-related administrative moratorium)

  • Had the COVID-19 emergency not occurred, this borrower’s interest would have been capitalized at the end of the hardship on January 22, 2021.
  • The borrower owes a principal of $ 10,000 as of March 12, 2020 and interest of $ 73.25. The $ 73.25 is interest accrued during the hardship grace period through March 12, 2020.
  • From March 13, 2020 to September 30, 2020, the borrower has an unlimited administrative moratorium. The postponement for economic hardship ends on March 12, 2020; it is being superseded by the COVID-19-related administrative leniency.
  • Due to the 0% interest rate, there is no interest from March 13th, 2020 to September 30th, 2020.
  • The capitalization, which would have taken place at the end of the economic hardship (January 21, 2021), is to take place in January 2021.
  • On October 1, 2020, the borrower owes $ 10,000.00 principal and $ 73.25 interest. No capitalization will be used on October 1, 2020.
  • The borrower will be re-enrolled in the hardship deferral from October 1, 2020 to January 21, 2021 to complete the deferral period for which the borrower has qualified.
  • The borrower’s interest ($ 73.25 plus interest accrued October 1, 2020 through January 21, 2021) will be capitalized on January 22, 2021 at the end of the deferral.

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Example 5: The borrower is on their grace period (graduated from school) before the COVID-19 suspension is applied.

The grace period is expected to end on August 15, 2020 and the borrower is expected to repay on August 16, 2020 with his first payment on September 7, 2020

  • If the COVID-19 emergency had not occurred, the interest of this borrower would have been capitalized at the end of the grace period on August 16, 2020.
  • The borrower owes $ 10,000 in principal and $ 200 in interest as of March 12, 2020. The $ 200 is interest accrued and not paid until March 12, 2020 while the borrower was at school.
  • The borrower remains in his grace period until the end of this grace period on 08/16/2020.
  • At this point, the borrower’s accrued interest is capitalized (as always at the end of the grace period), and the borrower enters the repayment status, but is immediately placed in the COVID-19-related non-capping administrative toleration from August 16, 2020 through September 30, 2020. The borrower owes $ 10,200 principal and $ 0.00 interest.
  • From 08/16/2020 to 09/30/2020 there is no interest due to the 0% interest rate.
  • On October 1, 2020, the borrower owes $ 10,200.00 principal and $ 0.00 interest. On October 1, 2020, there will be no capitalization.

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