Early last April of this year, the Department of Education (ED) extended the suspension of student loan payments that originally commenced in March 2020. The suspension announcement included other relief measures that student loan borrowers can apply for under the Income-Driven Repayment (IDR) plans. The purpose of which is to be able to have the lowest monthly payment amount possible once the suspension ends in August.
The US ED is encouraging borrowers to checkout and understand the eligibility requirements and different relief measures that could qualify them for lower monthly payment amounts.
What Exactly Does the Suspension of Loan Payments Mean?
First off, the suspension applies only to ED-owned student loans availed via federal loan servicers. Borrowers do not have to make payments up to August 31, 2020. Those who made payments prior to the announcement of the suspension can request a refund from their respective loan servicer.
How Does Suspended Collection Affect Defaulted Loan Payments?
Loan servicers will not collect payments even on defaulted loans during the suspension period. This is regardless of whether the borrower opted out of the payment suspension implemented by the ED.
What Exactly Does 0% Interest Mean?
Borrowers who are up to date on their loan payments prior to the March 2020 suspension will pay interest only on the payments due at the end of the suspension period. Interests that accrued from March 13, 2020 throughout the suspension period will not be capitalized, which means interests will not be added to the value of the outstanding principal.
On the other hand, if prior to the March 2020 suspension period the loan account already had accrued interests as results of late or non payment, the suspension period will not stop the capitalization of interest accrued on the defaulted amounts. Only the interest accrued on loan payments during the suspension period will not be capitalized.