When does interest resume on federal student loans?

Federal student loan deferment is set to end on Aug. 31, and interest will start accruing again. Here’s what you need to know before your payments resume.

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Federal student loan payments have been paused since March 2020, but they’re set to resume on Sept. 1. Will President Biden extend the federal loan moratorium? (Shutterstock)

Federal student loan payments have been on hold since March 2020 as a result of the COVID-19 pandemic. The government also sent the interest rate for federal student loans to 0% during the pause. The payment pause only applies to borrowers with federal student loans.

Payments were supposed to resume in April 2022, but President Joe Biden extended the student loan deferment again until Aug. 31. Assuming the deferment isn’t extended further, this will be the first time some federal borrowers have made payments on their federal loans in more than two years. 

Federal student loan borrowers will also begin making interest payments once their regular loan payments resume. Unless you consolidated your federal loans during the deferment period, when your payments resume your interest rate will be the same as it was before the deferment period.

You might consider refinancing your student loans after the payment pause ends. By visiting Credible, you can learn more about student loan refinancing and compare rates from multiple private student loan lenders.

Student loan deferment: What’s happened so far

Through executive action, President Biden has canceled more than $25 billion in student loan debt for 1.3 million borrowers. The majority of forgiveness has been extended to borrowers who were victims of school closures or have a permanent disability. 

For example, the U.S. Department of Education issued $7.9 billion in student loan forgiveness for 690,000 borrowers under the Borrower Defense to Repayment. To qualify for the Borrower Defense, borrowers must be able to show that the school they attended misled them, engaged in misconduct, or violated state law relating to their loans. 

The federal government also issued $8.5 billion in loan forgiveness for borrowers who suffer from a permanent disability. And 127,000 borrowers have received forgiveness through Public Service Loan Forgiveness (PSLF), a program that issues loan forgiveness to borrowers that work in public service jobs. 

In addition, the U.S. Department of Education has made changes to income-driven repayment (IDR) plans to help more borrowers qualify for student loan forgiveness. And President Biden campaigned on providing $10,000 in blanket forgiveness to all federal student loan borrowers.

However, federal borrowers still haven’t seen widespread student loan forgiveness. Assuming the federal loan deferment ends on Aug. 31, student loan borrowers should be prepared to start repaying their loans, with interest, on Sept. 1.

Once payments resume, you might consider refinancing your student loans. You can easily compare prequalified rates from multiple lenders using Credible.

What to do with your student loans before Aug. 31

The current federal student loan deferment is set to end on Aug. 31, but you should start preparing to repay your loans now. Here are some steps you can take before your loan payments resume in September:

  • Contact your loan servicer. The U.S. Department of Education recommends contacting your loan servicer to make sure your profile and contact information are up-to-date. You can do this on your loan servicer’s website and in your StudentAid.gov account.
  • Enroll in auto-debit. To ensure your payment information is correct, you should review your auto-debit enrollment. Or you can enroll in auto-debit for the first time to simplify your monthly payments. You can update your information or enroll with your student loan servicer.
  • Learn about all your repayment options. Signing up for an IDR plan can help you lower your monthly payments and eventually qualify for loan forgiveness. You can use the StudentAid.gov Loan Simulator tool to review your options and learn how you can pay down your debt faster.
  • Make extra payments while interest is paused. You can make additional progress on your federal loans by making extra payments while the interest rate is at 0%. Making additional payments means that 100% of your payment is going toward the loan principal.

Will the CARES Act be extended?

Many borrowers may be wondering if the federal student loan deferment will be extended beyond Aug. 31. No one knows for sure at this point, but it does seem possible — President Biden has already extended the deferment four times during his presidency.

U.S. Secretary of Education Miguel Cardona has indicated that another extension is possible. 

"I don’t have any information now to share with you about when it would end or what the conversations are about when it’s going to be lifted," he told a Senate subcommittee in June. 

"I know we have a date, and it could be that it’s extended. Or it could be that it starts there. But what I will say is that our borrowers will have ample notice."

President Biden has also received pressure from activist groups and top Democrats to extend the student loan deferment and provide more meaningful debt cancellation. So a CARES Act extension seems to be on the table, but it’s unclear whether or not it will happen.

In the meantime, federal borrowers should assume that their student loan payments will resume on Sept. 1 until they learn otherwise. 

To get started on refinancing your student loans, visit Credible and compare prequalified rates from multiple lenders.