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The Impact of the Federal Interest and Payment Freeze on Loan Forgiveness (UPDATED)

Forbearance and deferments don’t usually count towards student loan forgiveness, but the Covid-19 payment pause is an exception.

Written By: Michael P. Lux, Esq.

Last Updated:

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The Coronavirus pandemic has caused the federal government to take unprecedented steps to help borrowers manage their debt.

As part of the economic relief during Covid-19, student loan payments and interest have been paused for most federal student loans.

The break from student loan payments was a welcome surprise to many borrowers. However, it has also caused some confusion. How does this impact borrowers chasing Public Service Loan Forgiveness? Will this time count towards PSLF? Does it count towards the 20 or 25-year Income-Driven forgiveness plans? Is there anything borrowers need to do?

Because Covid-19 was not anticipated when the student loan contracts were drafted, and when the PSLF law was passed, there isn’t an existing procedure in place. Fortunately, there are a few simple steps that borrowers can take to help ensure that time on a virus deferment can still count towards student loan forgiveness.

The CARES Act on Student Loan Forgiveness

One of the great features of the CARES Act is that it explicitly said that during the months that payments were suspended, borrowers would still get credit towards student loan forgiveness programs. (The applicable text from the legislation is available here.)

In response to the new law, the Department of Education created a page dedicated to answering questions about the Coronavirus relief program. The requirements for the time to count towards student loan forgiveness are pretty clear:

In short, under the CARES Act, borrowers should not need to make extra payments or take any additional steps to get the time to count towards student loan forgiveness. However, the CARES Act student loan relief ended on September 30th, 2020.

Trump and Biden’s Student Loan Executive Orders

The confusing part of the initial executive orders on student loans was that they don’t make reference to student loan forgiveness. Without specific language about the payment pause time counting for programs like PSLF and income-driven forgiveness, borrowers were left in limbo.

Eventually, The Department of Education issued a press release explaining that the payment and interest rate freeze period covered by the executive order WILL COUNT for Public Service Loan Forgiveness and Income-Driven Forgiveness.

Will Making Extra Payments Help?

Some readers have questioned whether or not making typical payments might help in their quest for student loan forgiveness.

While there was some initial confusion as to whether or not making extra payments would help, the clarity from the Department of Education means that borrowers won’t need to make payments for the time to count for forgiveness.

Steps for Borrowers to Take to Count Time Towards the Forgiveness Clock

Under the law, there are not any extra steps that borrowers need to take to get the Covid-19 relief time to count towards forgiveness.

Sadly, as most student loan borrowers know, loan servicers are prone to making mistakes. The payment and interest freeze is a new process for all loan servicers, so the possibility of a glitch certainly exists.

Even though forgiveness could be years or decades away for some borrowers, some steps can be taken now to avoid delaying student loan forgiveness.

  1. Get an updated count on progress towards forgiveness.
    • Public Service Loan Forgiveness candidates can submit an employer certification form right away.
    • Borrowers working towards forgiveness on an Income-Driven Repayment plan such as Income-Based Repayment (IBR), Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) can ask their servicer for an updated tally of payments as of March 2020.
  2. Get an updated progress report after the payment freeze ends.
    • We don’t know how long Covid-19 or the payment freeze will last, but when it eventually ends, get another updated tally.
    • If there is an issue, it will be easier to address when it is identified right away.
    • Servicer statements on progress could be very useful if later updates have a mistake.
  3. Keep a timeline of all eligible payments.
    • If borrowers don’t keep detailed records of their progress, they won’t know whether or not their servicer made a mistake.
    • It might be hard to prove a payment was made many years later, but setting aside records as you go will make things easier.

Taking these extra steps may not be required, but when operating in a system where mistakes often happen, having proof of progress is incredibly valuable. Considering how much debt many borrowers stand to have forgiven, it could be time very well spent.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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