No interest has been charged on federal student loans since early 2020, and no payments have been due. And even if you haven't chosen to voluntarily make any loan payments during the pause, you might be surprised to learn that these past few years could potentially help you have your loan balances forgiven.
Loan forgiveness programs can wipe the slate clean
In addition to the Biden Administration's efforts to pass broad student loan forgiveness, there are several loan forgiveness programs that already exist. The three that could potentially affect the most federal student loan borrowers are:
- Public Service Loan Forgiveness (PSLF) — If you work in qualified public service employment, you can have any remaining loan balance forgiven after making your required loan payments for 10 years under an eligible repayment plan.
- Teacher Loan Forgiveness — Teachers in eligible low-income educational institutions can have up to $17,500 in student loans forgiven after five consecutive years of teaching experience.
- Income-driven repayment — If you enroll in an income-driven repayment plan, such as Pay As You Earn (PAYE), any remaining balance will be forgiven after a 20- or 25-year repayment period, depending on the plan and the nature of your loans.
Image source: Getty Images.
What about the past three years?
Here's the key point to know: The entire payment pause is considered as if you had been making payments the entire time. In other words, the past three-plus years count toward loan forgiveness.
According to the Department of Education, “Paused payments count toward PSLF and TEPSLF as long as you meet all other qualifications. You will get credit as though you made monthly payments.” (Note: TEPSLF is the temporary expanded PSLF program designed to make it easier for people to qualify.)
Separately, on the DOE's website outlining the various income-driven repayment plans, it is made clear that “periods where your required payment is zero” count toward the required repayment period. So, if you previously enrolled in an income-driven plan and your particular repayment plan is 20 years, the pause has knocked out more than three of them for you.
Consider this example. Let's say that you graduated from college in 2018 and started making payments under an income-driven repayment plan in October 2018 while working in public sector employment. The COVID-19 payment pause went into effect in March 2020, after you had been paying for about a year and a half. You haven't made a single loan payment since the pause started.
In this case, you will receive credit for a full five years of repayment toward Public Service Loan Forgiveness, even though you have only made one and a half years of actual loan payments.
Make sure you're ready
The point is that you might be closer to having your student loans forgiven than you think, thanks to the rule that specifically counts the payment pause as time you were making the required payments on your loan(s).
Because of this, it's important to make sure your paperwork is up to date. This is especially true when it comes to PSLF, which requires you to keep written records of your qualifying employment for the entire 10-year repayment period. Your loan servicer or the DOE's student loan website (Studentaid.gov) can help point you in the right direction.
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