On his first day in office, President Biden extended the suspension of payments and interest on federally-held student loans through September. This relief has been in place since March 2020 due to the coronavirus pandemic.
Still, many advocates have been unhappy that loan forgiveness hasn’t been provided. Biden backed a plan to provide $10,000 in student debt cancellation as a form of economic stimulus and relief, but it was not included in his relief proposal.
But there is a silver lining from the student loan payment pause for at least some student borrowers seeking loan forgiveness under two existing loan forgiveness programs: income-driven repayment and Public Service Loan Forgiveness.
The federal government offers a number of income-driven repayment plans that limit 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 payment under an income-driven repayment plan, their balance is forgiven. The low payments provide relief to borrowers who may face short-term economic hardship. And the forgiveness helps them if their higher education never led them to a job with wages sufficient to pay back their loans.
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Similarly, the federal government has the Public Service Loan Forgiveness (PSLF) program to reward those who choose to work in public service, often forgoing higher wages to do so. After ten years of repayment in an eligible repayment plan while working for an eligible non-profit or the government, borrowers can get their balance forgiven.
The good news for these borrowers is that the months of non-payment under the payment pause count towards their forgiveness. Since payments have been suspended since mid-March 2020, that means the 19 months without a payment will count towards their required number of payments, essentially granting them more in forgiveness.
For example, a borrower in PSLF would only be required to make 101 payments compared to 120, a 16% reduction in the number of payments. Depending on the amount they are normally required to pay, this could equate to a significantly larger amount of forgiveness received.
Borrowers who aren’t in these programs that choose to take advantage of the payment pause won’t be so lucky. While they won’t have interest accrual and are relieved from payments temporarily, a borrower under the standard 10-year repayment plan would still make 120 payments, just over a longer time.