The Biden administration has extended the pause on interest and collections activities to borrowers who have defaulted on loans in the Family Federal Education Loan (FFEL) program, the U.S. Department of Education announced on Tuesday.
This move is expected to impact over 1 million borrowers and protect 800,000 people from having their federal tax refunds seized due to their defaulted student loans.
The new relief applies only to FFEL borrowers in default
Federal student loan interest charges and collections activities have been stalled since March 2020 in response to COVID-19. However, until now, these relief measures applied only to federally held student loans — not private student loans or loans held by guaranty agencies. With this new announcement, FFEL borrowers in default will benefit from the interest and collections pause for the first time.
Borrowers who meet the eligibility requirements will see relief retroactively applied to March 13, 2020, says Mark Kantrowitz, leading national student loan expert. “All collection activity on these loans will be suspended, retroactively, so any wage garnishments and offsets of income tax refunds will be refunded to the borrower.” Additionally, if a borrower voluntarily made payments on their defaulted loan, they can request a refund on the payments made. Borrowers should also see default status initiated after March 13, 2020, removed from their credit reports.
One important caveat is that only borrowers currently in default can benefit from this relief. Borrowers with FFEL loans in good standing are still subject to interest charges, as are borrowers with private student loans. The goal of this move is to protect borrowers who would otherwise have seen their tax refunds seized this year due to defaulted loans.
What to do if you need help with your student loan payments
Private student loans are not eligible for the waiver, explains Kantrowitz, and it’s highly unlikely that they will be affected by federal policy in the future. Borrowers with private student loans — or FFEL loans in good standing — should contact their lender if they’re experiencing financial hardship. Even though interest charges are still in effect, many lenders have added forbearance programs in response to COVID-19.
Federal borrowers can take advantage of the payment pause currently in effect through Sept. 30, 2021. Any funds you would be putting toward your federal loans could be instead applied to private student loans, credit card debt or emergency expenses. If you don’t have other debt, you may also continue making payments interest-free to pay down as much of your principal as you can. This will help you pay down that debt quicker — and cheaper.