Student Loan Borrowers Get Extended Relief Under New Provisions

female student home schooling because of a ban on going out

President Joe Biden signed a series of executive orders the day he was sworn into office, including one directly related to federal student loans. While student loan forgiveness wasn't part of these initial actions, as some had hoped, the executive order does provide relief for borrowers who would have otherwise had to resume making payments by extending student loan payment forbearance.

How Does the Executive Order Impact Student Loan Borrowers?

The executive order signed on January 20, 2021, extends the protections and benefits that the CARES Act put into place in early 2020:

  • Pauses student loan payments
  • Pauses collections on defaulted student loans
  • Temporarily lowers interest rates to 0%

These protections were originally set to expire on September 30, 2020, but two extensions had pushed that date to January 31, 2021. President Biden's executive order further extends them through at least January 31, 2022.

You don't need to do anything to qualify for the extensions—they're automatic.

As was previously the case, the suspended monthly payments could still count toward Public Service Loan Forgiveness (PSLF). However, you do need to meet the other requirements, including working full time at a qualifying employer.

Suspended payments can also count toward rehabilitating a defaulted student loan, which usually requires making nine on-time monthly payments. Although collection actions have been paused, this could present an opportunity to get your student loans out of default and help prevent collection actions in the future.

Some Student Loans Still Don't Qualify

The temporary pause on payments, collections and 0% interest rate only applies to student loans that the U.S. The Department of Education owns.

You may already know if you qualify, as your loan payments or collection actions would have automatically paused once the CARES Act was enacted last spring.

But, as a reminder, the executive order does not impact:

  • Private student loans you borrowed from a non-governmental lender
  • Federal Perkins Loans that your school owns
  • FFEL Program Loans that a private lender owns

If you're struggling with student loans that aren't covered by the CARES Act or the extensions, reaching out to your loan servicer may still be the best option. Many private student loan companies have forbearance and hardship options, although they don't necessarily suspend interest accrual as well.

Additional Student Loan Action May Be Coming

Some people expected the extension, and there's also some speculation about additional student loan-related actions that the president or Congress may take in the coming months. None of these are guaranteed, but based on proposals shared during the Biden campaign, these could include:

  • Forgiving at least $10,000 of federal student loans.
  • A new income-based repayment plan that limits payments to 5% of a borrower's discretionary income and offers tax-free forgiveness after 20 years.
  • Interest-free forbearance on student loans for borrowers making less than $25,000 a year.
  • An expansion of the PSLF program that offers up to $50,000 in forgiveness after five years. The current program offers unlimited forgiveness but requires 120 monthly payments (or 10 years' worth).

As with the CARES Act benefits and extensions, the possible additional provisions may only apply to federal student loans owned by the Education Department.

Should You Make Payments if You Can?

Because federal student loans first went into forbearance with a 0% interest rate, borrowers can make payments if they want. The payments are first applied to interest that has previously accrued or fees (from defaulted loans), and then pays down the loan's principal.

In a few cases, it may make sense to make payments.

For example, if your loans were in a grace period, deferment or forbearance before March 13, 2020, interest may have accrued before the CARES Act came into effect. As a result, the interest could be capitalized (in other words, added to your loan's principal balance) once payments resume. Your interest rate will then apply to your larger principal balance, which is why it may make sense to pay off at least the accrued interest now.

Additionally, if you can afford to make student loan payments, there could be a psychological benefit to paying down your balance—particularly if you're able to completely wipe out a few loans.

If your loans are in forbearance and aren't accruing interest, however, there isn't necessarily a financial benefit to paying down the debt.

Depending on what other debts you hold, it may make more sense to forgo student loan payments and pay down other interest-accruing accounts instead. Or, set the money aside as extra emergency savings—you can make a large student loan payment later if you don't need it in the interim. Additionally, with the potential of student loan forgiveness on the horizon, it may make sense to hold off on making payments if your debt might be forgiven.

How Can Student Loan Forbearance Impact Your Credit?

Federal student loans that were in good standing and put into forbearance because of the CARES Act (and subsequent extensions) should be reported to the credit bureaus as though the suspended payments are on-time payments.

However, student loan debt can impact your creditworthiness in other ways. For instance, if you apply for a mortgage or other type of loan, the creditor may consider your outstanding loan amount when reviewing your application.

Stay on Top of Future Announcements—and Your Credit

The Department of Education has a website set up with recent announcements and frequently asked questions about how student loans are being handled in response to the pandemic and accompanying recession. While news outlets generally cover major announcements, you may want to check the site if you need clarification on a specific question. You can also reach out to your loan servicer if you can't find the answer on the site.

You can also check your Experian credit report to see the student loans you have in your name and how they are being reported. The free account includes credit report monitoring, with alerts for key changes, and an explanation for the factors that are most impacting your credit score.