What you need to know about the payment pause for student loan borrowers

Most student loan borrowers don’t have to start making payments on their debt again until January 2021. 

With Republicans and Democrats locked in a stalemate on the details of another coronavirus stimulus package, President Donald Trump signed an executive order earlier this month that granted people with student debt another three-month break from their bills, during which interest will not accrue.

There have been some questions over whether such a move is constitutional, but the U.S. Department of Education has now announced that it will fully implement the president’s memorandum. 

It remains to be seen if another stimulus package in Congress offers more relief to student loan borrowers. House Democrats, in their $3 trillion HEROES Act, called to extend the payment pause until Sept. 30, 2021.

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In the meantime, most borrowers should be off the hook until at least the start of next year.

Still, questions remain.

Should everyone stop paying their student loans? What does this mean if you’re pursuing public service loan forgiveness? (That program was signed into law by President George W. Bush in 2007 and allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years.) 

“I probably got asked in 105 different ways, ‘Are you sure this counts for PSLF?'” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps student loan borrowers with free advice and dispute resolution.

CNBC spoke to student loan experts monitoring the news. Here’s what they know so far. 

No. The extension of the payment pause through Dec. 31, 2020, is automatic. If your loans qualify for the reprieve, you shouldn’t have to request it with your servicer — unlike the Education Department’s usual forbearances and deferments. 

Put another way: “Borrowers don’t need to do a darn thing,” said Mayotte. 

Most student loans will qualify for the coronavirus forbearance, but some won’t, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors. 

All “Direct” federal loans are eligible, said Mark Kantrowitz, publisher of SavingForCollege.com. Many Parent Plus loans should qualify, too. 

However, Federal Family Education Loans, or FFELs, and Perkins loans will only be eligible if they’re “federally held,” said Will Sealy, co-founder and CEO of Summer, which helps people navigate their loan repayment.

If there’s any confusion, borrowers can go to the Department of Education’s Federal Student Aid website to learn their loan type and lender. If a loan is “federally held,” Sealy said, the lender will be listed as the U.S. Department of Education.

You can also call your servicer or 1-800-4-FED-AID to find out if your loans qualify. 

Under these plans, student loan borrowers’ monthly bills are capped at a portion of their income, and some payments wind up being as little as $0. The government forgives any remaining debt after 20 to 25 years, though there can be a hefty tax bill at the end. 

These plans could be a lifeline for borrowers struggling amid Covid-19, Sealy said. If your income has dried up, you should let your lender know so it can recalculate your monthly obligation.   

And if you take advantage of the payment pause on one of these plans, the time will still count toward your eventual debt forgiveness. 

Each month of the coronavirus forbearance will still count toward the 120 payments you need to get your debt canceled under PSLF.  That means you definitely want to take advantage of the reprieve if you’re a teacher, government official or other public servant with student loans. 

“Paying right now if you’re pursing PSLF is like throwing your money down the toilet,” Mayotte said. 

If you lose your job over Covid-19, you should “immediately seek a new public service job,” Kantrowitz said.

“Payments count toward public service loan forgiveness only while the borrower is employed full time in a qualifying public service job,” he said.

The government is also stopping the garnishment of wages, Social Security checks and tax refunds from defaulted student loan borrowers until next year. 

“If your wages are still being garnished, contact your human resources department, as they were supposed to stop doing this,” Kantrowitz said. 

If you’re worried about other offsets continuing, Kantrowitz said, you should call the Education Department’s Default Resolution Group at 1-800-621-3115. 

That’s an understandable concern. Student loan servicers have been known to make errors and even give out false information. 

To make sure your lender doesn’t charge you interest during this break from your payments, you should take a screen shot of your balance today to make sure it doesn’t grow and to have proof in case you need to show your lender. 

“Given that servicers do not have the best track record for accurate record-keeping, we are suggesting that borrowers save copies of their monthly loan statements in case there are unexpected discrepancies,” Sealy added. 

What you do with this extra cash will depend, of course, on your unique circumstances. Many families need that money now for essentials like food and medicine. 

But if you have a little more flexibility, you should try to pay down any high-interest debt you might have, such as on a credit card carrying a balance, Sealy said. Or you might consider stashing away the extra money in an emergency savings account, as we don’t yet know when life will return to some form of normalcy. 

Investing the money, particularly in a retirement account, would also be a smart idea.