CHESTNUT HILL, MASSACHUSETTS - MARCH 31: A view of the campus of Boston College on March 31, 2020 in . [+] Chestnut Hill, Massachusetts. Students at Universities across the country were sent home to finish the semester online due to the risk of coronavirus (COVID-19). Massachusetts Governor Charlie Baker put the state under a “stay at home” order in an attempt to contain the virus. (Photo by Maddie Meyer/Getty Images)
The Coronavirus Aid, Relief, and Economic Security Act signed into law March 27, known as the CARES Act, introduced several new measures to support individuals and businesses struggling during the coronavirus pandemic. For most federal student loan borrowers, the CARES Act offers substantial relief by automatically suspending monthly payments, and reducing interest to 0%, through Sept. 30, 2020.
But if you’re pursuing Public Service Loan Forgiveness, how does the student loan payment suspension, known as an administrative forbearance, impact you? The short answer: If you’re still working full-time for a qualifying employer, you’ll stay on track for forgiveness. Here’s what you need to know.
Under Public Service Loan Forgiveness (PSLF), borrowers with federal direct loans can qualify for loan forgiveness after making 120 monthly payments while working full-time for an eligible employer, which include government agencies and nonprofit organizations. Payments made while on an income-driven repayment plan , which reduce monthly student loan bills to a percentage of income and extend repayment terms to 20 or 25 years, count as qualifying payments for PSLF.
Under the CARES Act, payments on federal student loans — including direct loans, Perkins loans and Federal Family Education Loans owned by the U.S. Department of Education — are automatically suspended from March 13 through Sept. 30, 2020. That means eligible federal loan borrowers do not have to make payments. While loan payments are suspended, interest will not accrue.
Many borrowers planning on applying for loan forgiveness through PSLF were concerned initially that the suspension of payments would affect their eligibility. But according to the U.S. Department of Education’s recently updated website , each suspended payment will be viewed as a qualifying payment for PSLF, as long as it otherwise would have met the program’s requirements. If you’re working full-time for an eligible employer during the forbearance period, then each suspended payment counts toward PSLF. Additionally, unpaid interest won’t be capitalized during or after the forbearance period, according to the U.S. Department of Education.
If you’re still employed with a nonprofit organization or government agency, the CARES Act will benefit you. You have until the end of September before you have to worry about making student loan payments again, and you still make progress toward loan forgiveness.
The CARES Act will impact you differently if the coronavirus outbreak has affected your employment status.
If you have been laid off, furloughed or if your hours have been reduced so you’re working less than 30 hours per week, payments made during this time — including the suspended payments — don’t count toward PSLF.
If that’s the case for you, you won’t lose your eligibility for PSLF altogether. Qualifying payments do not need to be consecutive. If you get a new job with another nonprofit organization, get rehired by your previous employer or return to full-time status and start making payments again, your payments at that time will count toward PSLF, in addition to any payments you’ve already made.
If you take a job with a nonqualifying employer so that you have income during this difficult time, the payments you’ve made so far will still count toward PSLF. When you return to public service work later on, you’ll get credit for the payments you made while previously working for a nonprofit organization or government agency. You just won’t get credit for the period when your work was ineligible for PSLF.
Since no interest is accruing on federal loans through Sept. 30, 2020, some borrowers who can afford to do so may continue making payments or even make extra payments. During this time, the entire payment will go toward principal, helping them pay off their debt faster.
As a PSLF candidate, though, this strategy isn’t effective: You can’t qualify for PSLF sooner by making extra payments. Any balance left after you’ve made 120 payments will be forgiven tax-free. If you pay more than the minimum required — or, in this case, make payments while they’re suspended — you’ll simply be paying more than you need to.
One of the only times it makes sense to make extra payments is if you’re no longer eligible for PSLF, you don’t plan to return to a public service career, and you want to accelerate debt repayment.
If you are working toward PSLF, here are the steps you can take to confirm you qualify for the program and apply when you’re eligible for forgiveness:
The CARES Act provides significant relief to many federal student loan borrowers reeling from the COVID-19 crisis. You don’t need to request that your loans be put into forbearance — according to FedLoan Servicing’s website, your online account should now reflect that your interest rate is at 0%, and you’ll receive a notice by April 10 confirming that your payments have been suspended automatically.