Should You Stop Paying Your Student Loans in Forbearance?

The possibility of student loan forgiveness is on the horizon, so should you stop making payments on your own loans?

That depends, but let’s take a look at where we stand so far:

• On the campaign trail, then-candidate Joe Biden promised to wipe out at least $10,000 for student loan borrowers.
• Now that he’s president, Biden is getting pressure from some to increase that amount to $50,000 or more. But he’s also getting pushback from other groups who aren’t in favor of wiping out any student loan debt. (More on that later.)
• An administrative forbearance that freezes interest rates and payments for federally held student loans has been extended until Sept. 30, 2021.

So what does all this mean for you, the student loan borrower?

Depending on your loans and financial situation, you might actually be better off making larger payments right now… or none at all.

Don’t worry, we’ll explain.

Is Student Loan Forgiveness Likely to Happen?

During his campaign, Biden announced that part of his Emergency Action Plan for the economic recovery would include forgiveness of at least $10,000 in student loans for borrowers, plus additional relief for those who attended public colleges or historically Black colleges and universities.

Bur remember, not all campaign promises come true.

Some groups have been pressuring the Biden administration to up the limit to $50,000 in student loan debt or wipe out all $1.7 trillion outstanding student loan debt. And there are plenty of other factions who aren’t in favor of forgiving student loans at all and instead want to focus on relief efforts for other parts of the economy.

With all these plans on the table, there’s no guarantee of anything, according to Betsy Mayotte, president of The Institute of Student Loan Advisors, a non-profit organization that offers free student loan advice and dispute resolution assistance to borrowers.

“I’ve been working in the student loan industry for over 20 years, and we’re closer to some sort of broad student loan forgiveness than we’ve ever been before,” she said. “With that said, I think the chances of broad student loan forgiveness are very, very slim still.”

And even if some sort of forgiveness does come to pass, it’s highly unlikely the federal government will simply wipe out all debt in one broad stroke.

It’s important to be realistic about which groups of people and types of loans will be forgiven, said Steve Muszynski, the founder and CEO of Splash Financial, a student loan refinancing marketplace.

“What President Biden campaigned on was a $10,000 forgiveness amount for select groups,” he said. “Select groups tend to be people that didn’t get an advanced degree, maybe make less than $125,000 a year, as an example.”

We’re closer to some sort of broad student loan forgiveness than we’ve ever been before. With that said, I think the chances of broad student loan forgiveness are very, very slim still.

However, one thing that is certain right now is that federally held student loans are in forbearance — interest rates are automatically set to 0% and all payments are suspended.

Forbearance was originally part of the Coronavirus Aid, Relief, and Economic Security Act — aka the CARES Act — passed in March 2020 and extended a few times to its current deadline of Sept. 30, 2021.

So with forbearance a sure thing and forgiveness a possibility, should you be making payments on your student loans? Let’s look at the factors that can help you decide.

6 Questions to Ask Before You Stop Paying Student Loans in Forbearance

Before you start celebrating that your student loans are going to disappear, let’s do a reality check and figure out how forgiveness might affect you.

1. What Type of Student Loans Do You Have?

Not all student loans are eligible for forbearance — and it’s highly unlikely they will all be eligible for forgiveness.

The forbearance covers all loans owned by the U.S. Department of Education, which includes Direct Loans, subsidized and unsubsidized Stafford loans, Parent and Graduate Plus loans and consolidation loans.

If you have private student loans, these loans are not covered by the administrative forbearance period and there’s almost zero chance they’ll be wiped out by a mass forgiveness.

Not sure who owns your student loans or how much you owe? You can call the Federal Student Aid Information Center at (800) 433-3243 and check out this guide to help you get organized.

If you have a mix of private and federally held student loans, your best strategy may be to use the money you’d normally pay toward federal student loans to pay off more of the private loans still actively accruing interest.

If you qualify, refinancing private student loans could help you lower your interest rate and monthly payments.

“If you have anything over, say, 5 or 6% on your private loans, it doesn’t hurt to look,” Mayotte said.

2. How Much Do You Owe?

The amount you owe may help you decide if you should use the forbearance period to make a dent — or wait.

Even if $10,000 in forgiveness is on the horizon, you’d still be responsible for any remaining debt over that limit.

“If you can afford to make the payments and you owe more than $10,000, you should absolutely be taking advantage of the 0% interest period to chip away at your debt,” Mayotte said. “But there’s no harm in taking that extra amount that you would be making in payments and socking it away somewhere you could earn some interest.”

As the forbearance deadline approaches, you can then use those saved payment amounts to make a lump-sum payment.

If you have less than $10,000 in student loans? Then it might pay to wait out the forbearance period, since forgiveness could potentially be approved in this time period.

However, you should continue to set aside the extra amount you would’ve paid and make the lump sum payment at the end of forbearance — if forgiveness doesn’t end up panning out.

3. Are You on the PSLF Track?

If you’re pursuing Public Service Loan Forgiveness — you have a direct loan, you’re on an eligible repayment plan and you work for a qualifying employer — then you can and should take advantage of the relief period by making no payments.

Those zero-dollar payments still count toward your total to earn forgiveness, and if your loans happen to be forgiven during this period, all the better.

Despite their eligibility, Mayotte said she knows of numerous cases where PSFL participants have continued to make payments — which might be understandable given the numerous issues that have beleaguered PSLF over the years (like borrowers discovering years’ worth of payments didn’t count because they were on the wrong repayment plan).

If you have been making payments since March, you can reach out to your servicer to request a refund for those payments.

But if you’ve lost your job or have had your hours cut to less than the 30-hour minimum, your non-payments will not count toward forgiveness (but you still don’t have to pay while in the forbearance period).

PSLF does not require consecutive payments, so you can still pause on payments if you think you’ll return to your non-profit or public sector job.

However, if you think it’s unlikely you’ll get eligible employment again, you may want to take advantage of the forbearance period to start paying on the loan. At the very least, you should update your income (if you’ve lost your job) on your income-driven repayment plan.

4. What Kind of Degree Do You Have?

If you have loans that you took out to get an advanced degree, don’t bank on forgiveness.

“People with advanced degrees are unlikely to get mass forgiveness, if any forgiveness, from the government because you’re seen as part of a society that has greater upward mobility,” Muszynski said.

Although undergrad loan debt may still be eligible for forgiveness, your graduate Plus loans are less likely to be included in a forgiveness plan. They’re also likely to have higher interest rates, which means the forbearance period is a good time to be putting a dent in that debt.

However, as with all federally held loans, Mayotte said she’d advise against refinancing into a private loan.

“I’m running into a lot of people right now who are kicking themselves because in the last couple years they did refinance their federal loan into private,” she said. “Now they can’t get the 0% and if [the government] does forgiveness, it’s not going to happen for them.

“They’re begging for a way to take it back, and you can’t.”

5. How Close Are You to Retirement?

If you’re nearing retirement and paying on student loans — whether it’s your own loans or those you took out to pay for your kids’ education — forgiveness may potentially help you wipe out some of your loans. Focusing on saving as much as you can for retirement may be the better bet during this forbearance period.

“Retirement should always come first as far as deciding where your money goes,” Mayotte said.

If you default on student loans after forbearance ends, the loans can be sent to collections, and your wages, tax returns and Social Security benefits may be garnished up to 15% for repayment.

But solely relying on forgiveness is probably not the best strategy, especially if you have more than $10,000 in loans or took out loans to get an advanced degree. In that case, you should start preparing for a future with a fixed income by aggressively paying off the student loan debt and looking into an income-driven repayment plan.

“Understand that you might be 80 years old when the loan is finally gone but at least the payments are going to be affordable and [they’re] not going to change,” Mayotte said.

6. What Does the Rest of Your Financial Situation Look Like?

All of these strategies for getting the most bang for your buck may not mean much if you’re struggling to pay the bills. If you are in a situation where you need the money to pay for your basic needs, take advantage of the forbearance period to get yourself back on your feet and to start building an emergency fund.

Also take into account how using this time to pay off student loans might help your stress levels vs. betting on forgiveness.

“Student loan debt can feel suffocating, and getting out of it can be a mental health benefit,” Muszynski said. “It’s important for people to recognize how they think about their debt, and whether they would prefer to be rid of it so they could be healthier from a mental perspective.”

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.