Federal Student Loans Now Paused Until 2021: Everything You Need to Know


It’s official: Federal student loans are paused until January 1, 2021.

Before the recent announcement, federal student loans were only frozen until September 30, 2020. But the U.S. Department of Education has now suspended all federal student loans through the new year.

Here’s what you need to know.

Why Federal Student Loans Are Paused

Federal student loans were first paused as part of the CARES Act, America’s first coronavirus economic stimulus bill. However, the CARES Act only paused federal student loans for borrowers through the end of September.

Due to the continued economic stress of the Covid-19 pandemic – as well as the current lack of a second stimulus package – the government has taken the next step to provide further financial relief from student loans.

To help ease the burden of federal loan bills on those currently struggling, the U.S. Department of Education made the decision to continue the payment freeze through December 31, 2020.

What the Federal Student Loan Pause Means For You

The pause on federal student loans suspends both payments and interest on any student loans held by the U.S. Department of Education.

If you have federal student loans through the government, you won’t get any new bills until January 2021. You won’t need to make any payments until your loans restart after the new year, and the interest rate for all federal loans during the freeze is 0%.

That means while your payments are suspended, you won’t have to worry about racking up any additional interest charges. Your loans won’t accrue any new interest until payments return.

In addition, if your federal student loans are already in default due to nonpayment, collections will be halted until 2021.

Lastly, if you’re part of an income-driven repayment plan or the Public Service Loan Forgiveness program, your non-payments during the freeze will still count toward your minimum payment requirement to qualify for forgiveness.

How to Take Advantage of the Federal Student Loan Pause

If you have spare funds during coronavirus, it may be a smart financial move to keep making your student loan payments during the federal loan pause.

Although it may feel great to take a break from student loan bills for a while, continuing to make your payments – even while their frozen – could be hugely beneficial.

That’s because any payment you make during the suspension has 0% interest attached to it – meaning your entire payment will go toward your student loan principal balance, rather than interest charges.

By maintaining your monthly payment schedule, you’ll cut down on your total balance faster than you would have under normal circumstances while paying nothing in interest.

Which Student Loans Are Not Included In the Freeze

The student loans included in the payment and interest freeze are eligible federal student loans, which are those held by specifically by the U.S. Department of Education. This includes:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans including Grad PLUS Loans for graduate students and Parent PLUS Loans for parents of students

Federal student loans that are not owned by the U.S. Department of Education are not included in the freeze. This includes:

  • FFELP loans (federal loans that were issued to borrowers before 2010 by private financial institutions)
  • Perkins loans (a type of student loan typically held by colleges and universities)

In additional, private student loans are not part of the student loan pause either. Private student loans are provided by private banks, credit unions, and other financial institutions.

How to Save on Private Student Loans

If you have private student loans and feel stuck with your bills and interest costs, you’re not alone.

Private student loans can feel overwhelming because there aren’t many relief options like there are for federal student loans. For example, private student loans don’t qualify for income-drive repayment or student loan forgiveness.

But if you’re struggling financially during this hard time, it might be possible to save on your private student loans through refinancing.

By refinancing your private student loans, you’ll replace your existing loans with one combined new loan with a new loan servicer – which comes with a fresh interest rate and updated repayment terms.

Compare Student Loan Refinance Rates with No Credit Check

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Looking to save money?

If you have good credit (or have a cosigner who does), you may qualify for a lower rate than you currently have – allowing you to save on interest costs. This will decrease your interest payments each month, but will also allow you to save big over the life of your loan.

Looking to have more room in your monthly budget?

Refinancing can also lower your private student loan bill. With refinancing, you can opt for a longer repayment term with some private lenders offering terms up to 20 years. An extended term will provide you with a substantially lower payment each month — which can be very helpful during economic hardship.

If refinancing private student loans sounds like a smart option, you can quickly check the options you qualify for with Purefy’s Compare Rates tool. In just minutes, you’ll see rates and terms from multiple top lenders so you can ensure you’re getting the best possible deal.

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