How the student loan payment hiatus can help bring about forgiveness

On his first day in office, President Biden extended the suspension of payments and interest on federal student loans through September. This relief has been in effect since March 2020 due to the coronavirus pandemic.

Still, many proponents were unhappy that credit was not granted. Biden endorsed a plan to provide $ 10,000 debt relief as a form of economic incentive and relief, but it wasn’t included in his aid proposal.

But there is a silver lining from the student loan payment hiatus for at least some students who seek lending through two existing lending programs: income-based repayment and public-service lending.

The federal government offers a number of income-based repayment plans that cap the amount a student borrower pays each month based on their income. If a borrower’s income is low enough, they can qualify for $ 0 payments.

After 20 years of paying under an income-based amortization plan, your remaining amount will be forgiven. The low payments relieve borrowers who may find themselves in short-term economic difficulties. And forgiveness helps them when their higher education has never led them to a job with enough wages to pay back their loans.

Similarly, the federal government has the Public Service Loan Forgiveness (PSLF) program to reward those who choose to work in the public service, often foregoing higher wages. After 10 years of repayment under an eligible repayment plan while working for an eligible nonprofit or the government, borrowers can choose to have their balances waived.

The good news for these borrowers is that the months of non-payment during the payment hiatus count towards their forgiveness. With payments on hold since mid-March 2020, the 19 months of no payment count towards their required number of payments, essentially granting them more forgiveness.

For example, in the PSLF, a borrower would only have to make 101 payments compared to 120, which is a 16% reduction in the number of payments. Depending on the amount you would normally have to pay, this could represent a significantly higher award amount.

Borrowers who do not participate in these programs and choose to take advantage of the payment hiatus will not be as lucky. While they have no accrued interest and are temporarily exempt from payments, under the standard 10-year repayment schedule, a borrower would still make 120 payments, slightly over a longer period of time.

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