The March 2020 passage of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act initiated an automatic administrative forbearance on federally owned student loans. So when can automatic forbearance kick in, and how can it affect your student loan repayment?
What Is Automatic Student Loan Forbearance?
General student loan forbearances are typically granted at the borrower’s request when they provide documented proof of their need for relief. The other type of forbearance is administrative. It includes automatic forbearance. An administrative forbearance can be granted at a borrower’s request, or it can be triggered automatically under specific circumstances. “Administrative forbearances are the types of forbearance where the (U.S. Department of Education) secretary has the discretion to put a borrower in forbearance without asking for additional documentation from the borrower,” Kyra Taylor, a staff attorney for the National Consumer Law Center’s Student Loan Borrower Assistance program, told The Balance. Eligibility for administrative or automatic forbearance can vary among different types of federal student loans. Direct loans, FFEL loans, Perkins loans, and HEAL loans are subject to different rules for forbearance.
When Is Automatic Forbearance Granted?
The guidelines governing automatic and administrative forbearance can be specific to loan type, and they can be complicated.
Coronavirus Administrative Forbearance
The CARES Act’s coronavirus student loan relief provisions directed the Department of Education to grant automatic student loan forbearance on all federally owned student loans. This administrative forbearance period has been extended until possibly as late as June 30, 2023. The CARES Act suspends both student loan payments and interest. You can ask for the suspension to be removed if you feel that you can manage your loan payments during this pause. Even if you opt out of the suspension, 0% interest is applied to your loans until the government announces that all student loan payments are to resume. The Department of Education expanded its loan forbearance to include defaulted Federal Family Education Loans (FFEL) on March 30, 2021. Any payments made during this time are eligible for reimbursement. Interest and penalties will not accrue, and wages or tax refunds that are garnished during this time to pay the private loan owner will be returned to the borrower. The loan will additionally be restored to good status if it went into default since March 13, 2020, and the credit bureaus will be notified to remove any delinquency from your credit report.
Disaster or Emergency Forbearance
Borrowers who live in declared federal disaster areas, such as those due to hurricanes, can qualify for disaster forbearance for up to 90 days. It can be renewed for 30 days at a time after the 90 days expires. Some servicers might only put you into automatic forbearance if you live in a disaster area after you’ve missed payments.
Retroactive Forbearance or Deferment
An administrative forbearance can be granted for a past repayment period in some cases. This type of forbearance is commonly granted for the time when payments were overdue, according to Taylor, and before an authorized deferment or forbearance begins.
Loans Waiting for Discharge or Forgiveness
Some forms of student loan discharge or forgiveness require that the Department of Education review documentation and determine whether the borrower is eligible. Taylor indicates that eligible federal student loans are typically put into an automatic administrative forbearance during this time. Borrowers might be eligible for forgiveness of federal student loans if they borrowed the money to attend a school that misled students or that engaged in unlawful misconduct. Their federally held student loans must be automatically placed in forbearance if a borrower files a “defense to repayment” forgiveness claim. The servicer might also receive notice of a borrower’s death or disability. It grants administrative forbearance on the borrower’s loans while it collects documentation to establish a death or disability that would discharge the student debt.
How Will You Know If Automatic Forbearance Is Applied?
You don’t have to make payments during a period of administrative forbearance, but it’s important to pay attention to your student debt. “If a servicer or the Department [of Education] initiates a forbearance, it should notify the borrower [via email or U.S. mail],” Taylor said. Log into your student loan servicer account, or contact its team by phone for updates on your student loan status. Another option would be to log into the National Student Loan Data System (NSLDS) to view your student loan information.
The Implications of This Type of Forbearance
The CARES Act administrative forbearance differs from traditional forbearance in several ways. Interest is suspended, so this period of forbearance won’t end with an increase in your balance. This law also directs servicers to treat the forbearance period as if you had made payments on time when they report to credit agencies. They must track progress toward certain kinds of forgiveness, such as Public Service Loan Forgiveness (PSLF). Having student loans in forbearance under other terms will affect your repayment in a few ways, however:
You’ll have a longer repayment period. Your payments are suspended now, so you’ll have to make up those payments later.You won’t have to pay interest during your forbearance period, but Direct and FFEL loans will still accrue interest during most kinds of forbearance. Unpaid interest is capitalized or added to your balance when you exit forbearance. It increases both your student loan balance and the total amount repaid.PSLF requires that you make a certain number of payments before student loan forgiveness will be considered. Most types of forbearance won’t count toward meeting these requirements. The administrative forbearance granted in response to the COVID-19 pandemic is an exception.Forbearance can be granted for as little as 90 days or up to 12 months or more. It depends on the reason for your forbearance and the types of loans you have.
Should You Stay in Automatic Forbearance?
Automatic forbearance can provide important student loan debt relief, kicking in when borrowers might not have the ability to start the process on their own. But this doesn’t necessarily mean that it’s best for your situation. It’s always wise to keep up with—and stay on track with—your student loan payments if you can afford to do so. Sticking to your original, standard payments will help you get out of debt more quickly while avoiding extra interest charges. You should also compare forbearance with other student loan debt-relief options, such as student loan deferment or an income-driven repayment plan. Find the best option for your specific situation. “If a borrower learns that their account has been put into forbearance, but they do not want it in forbearance, they can call their servicer to ask that their loans be put back into repayment,” Taylor said. You can also make payments during forbearance, which can be helpful if you can afford to make at least partial payments. Nothing says that you can’t pay if you choose to.
The Bottom Line
Be sure to do your own research and contact your student loan servicer to discuss your eligibility before you take steps to apply or accept forbearance. Taylor suggests seeking a student loan lawyer to advise you and protect your interests if your situation is particularly complex.
