Administrative Forbearance: Now What?
What is Administrative Forbearance?
Administrative forbearance is the period during which payments to federally held student loans have been automatically paused or suspended and interest rates set to 0%. Essentially this is a pause that keeps your loans exactly as they were at the beginning of this forbearance: if you take no action, your loan and interest balances will neither increase nor decrease.
Updates on Administrative Forbearance
On January 21, 2021 the Department of Education announced an additional eight month extension of protections for borrowers with federally-held student loans until at least September 30, 2021. During this time, payments to federally held student loans will continue to be automatically suspended and no interest will accrue during this time. This was originally instituted on March 13, 2020 to provide relief and protection to student loan borrowers during the pandemic. This does not apply to privately held student loans. If you’re not sure if your loans are in administrative forbearance, you can check with your servicer online or by phone.
Now what?
What you choose to do will depend on which types of loans you have and your financial circumstances.
Pursuing PSLF or Income Driven Forgiveness?
During forbearance, your suspended $0 payments will count toward your forgiveness progress, as long as you still meet all other eligibility criteria for your loan forgiveness program.
Want to get ahead?
While payments during administrative forbearance are automatically paused, you can choose to make manual payments to your loans. If you do so, the payment will first be applied toward any interest accrued from your last payment until March 13, 2020. Once that interest is paid, all additional payments will be applied toward principal on your loans.
This is a great way to lower your principal now, so that when the forbearance expires and payments and interest do resume, the interest will be calculated on a lower principal balance.
Generally, allocating your additional payment toward the loan which will have the highest interest rate once interest resumes will be the most financially advantageous.
If you want more information on the best way to apply these additional payments, please log in to your Vault account and visit the “Pay Off Faster” section.
In default or delinquency?
Catch your breath: Collections and garnishments are paused during administrative forbearance for federal loans in default.
Make a plan: There are several ways to deal with defaulted loans, but the most common way is to rehabilitate your loans. You’ll want to get a rehabilitation agreement in place with your servicer. This agreement determines payment amounts based on your ability to pay and you have to make nine consecutive and on-time payments to rehabilitate your loans.
Once you have your agreement in place, you will not have to make your agreed upon payments during administrative forbearance. Rather, your suspended “payments” of $0 will count towards your nine months of payments needed to successfully complete rehabilitation and get back in good standing. If administrative forbearance ends before you have completed rehabilitation, you will be required to make the remainder of the nine payments based on your rehabilitation agreement.
A few notes about rehabilitation:
- You can only rehabilitate loans one time.
- Rehabilitation is the only way to remove the default from your credit history.
- While rehabilitation will remove the default from your credit history, your missed payments will still be reflected in your credit score.