Federal student loan relief: what you need to know

For the 44 million Americans with federal student loans, there’s a bit of welcome news. On March 20, U.S. Secretary of Education Betsy DeVos announced that the office of Federal Student Aid is providing student loan relief to its borrowers during the COVID-19 national emergency. Breaking down the announcement, the relief package helps federal student loan borrowers in two ways:

• All borrowers will automatically have their interest rates set to 0% for at least 60 days.
• All borrowers will have the option to suspend their payments for two months without accruing interest.

Many have questions about this federal student loan relief: How does it all work? What should borrowers do to take advantage of this relief? How does this impact credit? Here are some FAQs that outline what you need to know. And if you have a question and don’t see it listed here, email us at support@helloresolve.com and our debt experts will help right away.

Related resources: How to navigate personal debt during the coronavirus pandemic

What does federal student loan relief mean for me?

There are four main things you need to know about the relief program:

• Your debt will not accrue interest for the next 60 days (beginning on March 13, 2020).
• 100% of any payments you make on these loans in the next 60 days will go toward paying down the principal of the loan (not interest). This means any payments you make on your loans in the next 60 days will have a slightly bigger impact on paying down your debt than they normally would.
• Payments will automatically be suspended on any federal student loan that becomes 31 days delinquent (past due) on or after March 13, 2020.
• You can contact your loan servicer to request administrative forbearance for the next 60 days. This will allow you to stop payments until at least May 12, 2020 with no adverse impacts.

Related article: Federal loan repayment options explained

How can I sign up for the 60-day forbearance?

Contact your loan servicer (the company that sends you the bills) and request that they place all your eligible loans into forbearance. If you need help finding your loan servicer, use this tool on the Department of Education website.

What if I don’t sign up for the 60-day forbearance?

Even if you don’t proactively sign up for it, payments will automatically be suspended on any eligible federal student loan that becomes 31 days late on or after March 13, 2020.

Will any of this affect my credit score?

This announcement on its own probably won’t affect your credit; however, if you intend to take advantage of this emergency policy, you may want to consider contacting your loan servicer and electively placing yourself into administrative forbearance, rather than becoming 31 days late and having your payments automatically suspended. This is because: 

• While loan forbearance is noted on your credit report, it doesn’t typically affect your credit score. 
• Missing a payment or making a late payment on a federal student loan that is not in forbearance could negatively affect your credit score, because it may be noted as a late payment. 

This is all a little confusing. What exactly are my options?

You have three clear options in response to this relief program. Take careful stock of your financial situation right now and choose the one that works best for you and your family:

Option 1: Keep making payments

If you have the resources to keep making payments, that’s great news! That means that 100% of your payments will go toward reducing the principal of your loan. This will help you pay off your loans faster and pay less interest over the life of the loan.

Option 2: Apply for administrative forbearance

You can contact your loan servicer and request forbearance on some or all of your federal student loans. Once this is confirmed, you can stop making payments on those loans until at least May 12, 2020. Note that if you need additional income right now due to a layoff, furlough, illness or any other reason, this is a powerful option for you. You can safely use the money you would have normally put toward your student loan to pay for other necessities, pay down other debt or build an emergency fund.

If you need help finding your loan servicer, use this tool on the Department of Education website.

Option 3: Just stop paying 

You can simply stop making payments on your loans without applying for forbearance. Payments will automatically be suspended on any federal student loan that becomes 31 days delinquent on or after March 13, 2020. Payments will not be due again until at least May 12, 2020.

Important Note: Purposefully missing payments in order to access this option may negatively affect your credit score, so we recommend contacting your servicer to get administrative forbearance (option 2 above) if you plan to stop payments.