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Should you defer your federal student loans during coronavirus forbearance?

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Borrowers with federal student loans received some welcome relief from their debts during 2020 and 2021. Since March 13, 2020, the Department of Education has paused payments, collections and interest charges on most federal student loans, and this relief is currently in effect until Aug. 31, 2022.

Borrowers do not have to apply for this forbearance, as it has been set up to automatically apply to eligible federal student loans. But while the payment pause is automatic, some borrowers may benefit from making continued payments on a voluntary basis.

What does it mean to defer student loans?

When you defer student loans, it means that your loan servicer freezes or reduces your payments for a specified period of time. Typically student loan deferment is only available if you meet certain eligibility criteria, such as being actively enrolled in school or serving in the military.

Another option you may have when you’re having trouble making payments on your student loans is forbearance, which can also temporarily place payments on hold. In general, you can pause federal student loan payments for up to 12 months at a time (with a three-year maximum cap). During forbearance, interest may continue to accrue on your loans.

The current interest-free payment pause is an administrative forbearance, which will not count toward your lifetime limits. You may still choose to make payments during this time, but they are not required.

Should you defer your federal student loan during coronavirus forbearance?

Eligible borrowers will receive automatic administrative forbearance status on their federal student loans. As a result, both your payments and interest will be on hold if you qualify.

Whether you choose to take advantage of this payment pause or continue making payments on your loans depends on what your financial priorities are and what other debt you’re dealing with.

Deferring loan payments gives borrowers flexibility in other areas

What are the benefits of skipping loan payments through the end of August? According to financial advisor Justin Nabity, who also runs Physicians Thrive, the biggest benefit most borrowers will get is a break from dealing with their loans. With people still trying to bounce back from COVID-related job layoffs and income reductions, Nabity says that deferment can allow cash-strapped borrowers to put funds toward more critical expenses.

Having an extended period of time to skip federal student loan payments could help borrowers get in better financial shape overall. Instead of paying student loans, individuals could move the amount of their payments into a high-yield savings account. They could also spend this time paying off any high-interest debt they have, including credit card debt.

It’s also wise to defer your payments if you’re on an income-driven repayment plan, even if you can afford payments. During this period of administrative forbearance, suspended payments will still count toward income-driven repayment forgiveness — essentially giving you free progress toward the completion of your plan.

Choosing to make payments could help borrowers pay off loans faster

If your income has dropped dramatically or you’re unemployed and looking for work, it makes sense to skip loan payments on eligible loans through the end of August. If you can afford to continue making loan payments, however, your decision isn’t so cut and dried.

For starters, having your loans set at 0 percent interest means that every dollar you pay toward your student loan will go to the principal. As a result of continuing with payments, your loan repayment timeline will shorten and you’ll save money on interest over time.

Keep in mind that skipping loan payments during forbearance also only puts off the inevitable. When the forbearance period ends, you’ll pick up exactly where you were in terms of your repayment timeline.

Who should defer their student loans?

Borrowers who will most benefit from this period of administrative forbearance include:

  • Individuals experiencing financial hardship.
  • Anyone with credit card debt or other high-interest bills they could pay off.
  • Borrowers who are able to funnel loan payments into a high-yield savings account.
  • Borrowers on income-driven repayment plans.

Who should not defer their student loans?

Individuals who should continue making payments on their student loans include the following:

  • People who haven’t lost income due to the pandemic.
  • Anyone who wants to pay off their loans as quickly as possible.
  • Borrowers with large loan balances that will take a long time to pay off.

The bottom line

Before deciding whether to make payments during administrative forbearance, consider your complete financial picture. Borrowers with lots of high-interest debt, such as credit cards or private student loans, should consider taking advantage of this period to defer federal student loans. On the other hand, borrowers who can afford payments on their federal loans have the opportunity to pay down the principal much more quickly.

Robert Farrington of The College Investor suggests that if you want to make extra principal payments, you should wait until just before the forbearance ends. “No reason to give the government any extra money! Just put it in a savings account and earn 1 percent for yourself,” Farrington says.

No matter which option you choose, just remember that the administrative forbearance period is set to expire on Aug. 31, 2022. Interest and payments will resume at that time, so sketch out a plan now in order to be prepared when the time comes.

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Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.
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Student loans editor