Education ministry suspends collections on overdue FFEL loans

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The Biden administration has extended the pause on interest and collection activities for borrowers who have defaulted on Family Federal Education Loan (FFEL) program loans, the US Department of Education said on Tuesday.

The move is expected to impact more than one million borrowers and protect 800,000 people from the seizure of their federal tax refunds due to their delinquent student loans.

The new relief applies only to FFEL borrowers in default

Federal student loan interest charges and collection activities have been blocked since March 2020 in response to COVID-19. However, until now, these relief measures have only applied to student loans held by the federal government, and not to private student loans or loans held by guarantee agencies. With this new announcement, borrowers in default of the FFEL will benefit for the first time from the break in interest and collections.

Eligible borrowers will have relief applied retroactively to March 13, 2020, said Mark Kantrowitz, the nation’s leading expert on student loans. “All collection activity on these loans will be suspended, retroactively, so that all wage garnishment and compensation for income tax refunds will be refunded to the borrower.” Additionally, if a borrower has voluntarily made payments on their overdue loan, they can request a refund on the payments made. Borrowers should also see the default status initiated after March 13, 2020 removed from their credit reports.

An important caveat is that only borrowers currently in default can benefit from this relief. Borrowers with FFEL loans in good standing are still subject to interest charges, as are borrowers with private student loans. The goal of this move is to protect borrowers who would otherwise have had their tax refunds foreclosed this year due to delinquent loans.

What to do if you need help paying off your student loan

Private student loans are not eligible for waiver, Kantrowitz explains, and are highly unlikely to be affected by federal policy in the future. Borrowers with private student loans – or FFEL loans in good standing – should contact their lender if they are experiencing financial difficulties. Even though the interest charges are still in effect, many lenders have added forbearance programs in response to COVID-19.

Federal borrowers can take advantage of the current payment break until September 30, 2021. Any funds you spend on your federal loans could instead be directed to private student loans, credit card debt, or emergency spending. If you have no other debt, you can also continue to make interest-free payments at repay as much of your capital like you can. This will help you pay off that debt faster and more cheaply.

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