Federal student loans will be paused for 6 months under the coronavirus stimulus package. Here's what experts say to keep in mind
Update 3/26/2020: This article was updated to reflect student loan provisions in the Senate coronavirus relief bill passed Wednesday night.
Student loan borrowers will be able to pause paying their federal student loan payments without penalty for the next six months, under the coronavirus stimulus bill passed by the Senate late Wednesday.
This comes after the Department of Education announced borrowers would be able to pause their payments for at least 60 days if they requested the forbearance.
The big change from the original DOE announcement, besides the amount of time loans can be deferred, is that payments will be automatically suspended for six months. Borrowers don't need to do anything in order to take advantage of this pause. During that time, interest will not accrue.
Additionally, collection on defaulted debts will be halted.
This provision was put into place to bring some relief to the millions of Americans who have had their hours reduced or been laid off in the wake of the coronavirus pandemic. Pausing federal student loan payments can help free up cash for other bills or financial obligation.
"It's the right thing to do if people are having trouble making ends meet," Michael Bloch, CEO and found of Pillar, a personal finance app, tells CNBC Make It.
If you want more information, you can call 1-800-4-FED-AID to talk to your servicer, or go this website for more information.
Typically, pausing payments costs a borrower more in the long run, because interest still accrues and is added to the loan's principal balance. But now, borrowers will receive a few months of relief without accruing more interest.
Reassess your budget
Borrowers will still be able to make payments during this time, and if you still can, you should, says Bloch.
"All federal student loans are temporarily accruing 0% interest," he says. "This means that borrower's payments will go further toward chipping away at the principal and getting them out of debt faster."
And this does not apply to private student loans. If you have private loans and are struggling, you should also reach out to your servicer and see if they can offer you relief. Otherwise, you will need to make payments as usual.
However, in another change from previous relief measures, pausing payments will reportedly not hamper someone who is seeking Public Service Loan Forgiveness. They can pause payments for six months and still have their loans forgiven after 10 years if they follow the rest of the PSLF guidelines.
"I'd encourage every borrower to take a close look at their budgets and see what makes the most sense for them to do," says Bloch.
The bill has been sent to the House for a vote.
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