Can I Skip Student Loan Payments Because of the Coronavirus?

Written by: Kristyn Pilgrim
Updated: 7/13/20

It’s no secret that the coronavirus has drastically affected many people’s financial situations. The stress of being furloughed or laid off, as well as losing business from clients and customers because of social distancing, means many people may not have the cash flow they need to pay their bills. 

Thankfully, one of those burdens has been lifted from the shoulders of those who are still paying off their federal student loan debt. As of March 13, 2020, student loan borrowers have been granted a six-month period of financial freedom from their monthly payments, allowing them to focus their finances on other priorities. If you are a federal student loan borrower, there is no action needed to take advantage of this, as all federal student loan borrowers have been automatically placed in administration forbearance, which suspends payments from March 13 through Sept. 30, 2020. 

The current forbearance comes as part of the $2+ trillion CARES Act, otherwise known as the Coronavirus Aid, Relief, and Economic Security Act, that was passed by Congress to provide fast and direct economic assistance to American workers, families, and small businesses, and to preserve jobs for American industries during the current coronavirus pandemic.

Not only do you have a break from paying your loans, but also, there is no interest accrual during this period. Furthermore, the government announced that interest on federal student loans would be waived until further notice

Having your loans put on hold right now, with zero interest accumulating, means that your debt will not increase at all while you are not making payments. It also means that if you do decide you want to make payments during this forbearance period, the entire payment you make will go toward the principal balance. 

Depending on your current financial situation, if you can still make payments toward your loan while there is zero interest, it could potentially help you pay off the loan more quickly.

Who Is Eligible for Forbearance?

A forbearance on your loan means that you do not have to make payments, or should you still choose to make payments, you can pay smaller amounts than what you would typically owe each month. The forbearance enacted because of the coronavirus pandemic has been automatically applied to all borrowers with federal student loans, even if they have their account set up for recurring payment – these have been suspended for the six-month period, as well. 

Borrowers who are more than 31 days behind on their payments are also able to take advantage of this payment suspension, giving them a chance to catch up on their finances and be more prepared to make timely payments once the forbearance is lifted.

The coronavirus forbearance only applies to federal student loans, however, as this is a government plan. All Direct Loans and Direct Parent PLUS Loans are eligible. If you have a Federal Family Education Loan (FFEL) that is owned by a private entity, like Sallie Mae or Citizens Bank, or a Perkins Loan that is owned by a college, these loans are not eligible for the forbearance. In fact, FFELs and Perkins Loans are only eligible if they are federally owned, which is only the case for a very small amount. If you are unsure about whether your FFEL or Perkins Loan is federally held, you can visit the Federal Student Aid website to check. If it is, it will show that the lender is the U.S. Department of Education.

I’m Eligible, But Should I Skip My Payments?

If you are currently still working and have active income, have no other debt, and solid savings, it is ideal to continue making student loan payments despite being eligible for forbearance. You’ll be paying down the principal without any interference from interest, which will make paying off your loan in a timely manner much easier to achieve. 

This is a chance to decrease your debt significantly, and you can do so by making small payments here and there. You don’t have to pay the same amount that you were paying each month before the forbearance started. There are no penalties for paying a small amount each month. Before you decide to continue making payments on your student loan, make sure that other priorities are covered, however.

What Can I Do If My Loans Don’t Qualify?

If you have an FFEL or Perkins Loan that is not eligible for forbearance, there are still options available to get you the financial assistance you need.

Both FFEL and Perkins Loans offer the option to apply for deferment and forbearance to pause your payments. It is important to note, however, that interest may still accrue for some FFEL programs. You don’t want any surprises after your deferment period is over, so be sure to look into this detail before pursuing so you know whether your debt will increase or not.  

If you have a Perkins Loan, you may be eligible for deferment due to unemployment and economic hardship because of the coronavirus pandemic. There are some benefits to this. There will be no interest accrued during the deferment period, and there is a six-month grace period after the end of the deferment, during which you don’t have to make payments. To apply for this, you will need to contact the school that owns your Perkins Loan or the lender that the school uses.

There is also a way that you can turn your ineligible loans into eligible ones. By consolidating your FFEL or Perkins Loans with a federal Direct Consolidation Loan, they will qualify for CARES Act benefits. However, consolidation has a downside, so you might want to exhaust all other options before making this your final choice. For one, consolidation does not happen overnight. It could take several weeks, which means you won’t be able to take full advantage of the six-month payment suspension period.

Secondly, your interest rate may end up being slightly higher than it was before your payments were suspended. This is because the rate is determined by the weighted average of your previous loan rate, rounded up to the nearest one-eighth of a percentage. 

Lastly, if you have an income-driven repayment (IDR) plan or are part of a Public Service Loan Forgiveness (PSLF) program, consolidating your loans means that any payments you’ve made toward those programs to date will not count, and you will need to start over.

Additionally, your Perkins Loans benefits will no longer be available to you. Perkins Loans often offer programs that provide loan forgiveness after five years to those in certain occupations. If you consolidate into a federal Direct Consolidation Loan and no longer have that Perkins Loan, you’ll lose access to those cancellation programs.

If you have a private student loan and are struggling to make your payments, it is recommended that you speak with your private lender to discuss appropriate accommodations or modifications due to the current situation. Don’t be afraid to ask about reducing or temporarily stopping your payments, or perhaps even just waiving any late fees. Many lenders have changed their policies and are offering alternative payment plans to those affected by the coronavirus pandemic. Banks are sharing information about coronavirus relief for private loan borrowers, as well.

Take Advantage of an Additional Resource

Even without a global pandemic going on, navigating the world of student loans can be complicated and intimidating. College Finance has all the tools and resources you need to make informed choices about financing your college education – before, during, and after your schooling. Life may be a little scary right now, but student loan repayment doesn’t have to be.