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Some borrowers are 19 months closer to student loan forgiveness

ByTina R. Wimmer

Mar 11, 2021

(NerdWallet) – Federal student loan repayments have been suspended, without interest, since March 13, 2020, as part of coronavirus relief. The forbearance has been extended until September 30, 2021. If the pause is not extended again, borrowers will have had a 19 months respite from their loans.

Most borrowers will resume paying exactly what they did at the start of forbearance. But some will be 19 months closer to having no payments at all.

Each month of abstention counts for the 120 necessary for Cancellation of civil service loansor PSLF, and the amount required for reimbursement based on income discount – 240 for undergraduate debt or 300 for graduate debt.

This means that borrowers who ask for forgiveness will still be forgiven within the original time frame, but they will have paid less over time.

How much less depends on many things.

Who can benefit ?

Nineteen months without payment saves you money only if:

  • You are pursuing civil service loan forgiveness.
  • You’re looking for an income-based repayment discount and your payments are low enough that you haven’t paid off your loan by the time you get the forgiveness.
  • You have a standard or progressive 10-year repayment plan and you take advantage of the interest-free period to make additional payments on your principal, which will save you money on interest.

If you can get a break, the monetary value of the break for an individual borrower will depend on where you are in your payment cycle and your payment amount, which is determined by your income. Here are some scenarios that illustrate what it could do for borrowers applying for PSLF or income-based payment forgiveness.

How much borrowers in civil service jobs could save

Say you’re a 2019 graduate who never made a payment on your $27,000 in federal undergraduate loans before the 2020 payment break.

But before the break, you secured full-time employment with an eligible public service employer. You plan to pursue PSLF and are enrolled in an income-driven repayment plan, if needed. We assume that your salary will increase over time at a rate of 3.2% over 10 years of repayment. You were ready to make your first payment when the break started in March 2020.

By the time your loans are canceled after 10 years, here’s how much you could save by not making 19 months of payments (depending on potential income):

  • Income of $20,000: $1,098 saved.
  • Income of $30,000: $3,176 saved.
  • Income of $40,000: $5,254 saved.

Now suppose the same employment scenario is true, but in this case you have high federal student debt – $129,500 – that you accumulated for undergraduate and graduate studies. But that higher degree helped you land a job with a higher income. Again, we assume that you will remain in the public service and your earnings will grow at a rate of 3.2% over 10 years of payments.

By the time your loans are canceled after 10 years, here’s how much you could save by not making 19 months of payments (depending on potential income):

  • Income of $70,000: $11,489 saved.
  • Income of $80,000: $13,567 saved.
  • Income of $90,000: $15,645 saved.

Savings on an income-based plan are not guaranteed

Forgiveness takes much longer if you are not employed in a qualified position in the public service. An income-based repayment plan could still save you money, if you don’t pay off your debt before cancellation.

Again, let’s say you’re a 2019 graduate who never made a payment on your $27,000 federal undergraduate loans before the 2020 payment break. You’re working and enrolled in the repayment plan based on the most widely available income, Revised Pay As You Earn. Under REPAYE, your payments are canceled after 20 years if you used loans for undergraduate studies.

In this example, you were due to make your first payment when the break began in March 2020. We assume, like the other examples, that your salary will increase at a rate of 3.2% over 20 years of repayment.

By the time your loans are canceled after 20 years, here’s how much you could save by not making 19 months of payments (depending on potential income). It is important to note that if your income increases, you could pay off the loan before it is eligible for forgiveness:

  • Income of $20,000: $2,636 saved.
  • Income of $30,000: $5,484 saved.
  • Income of $40,000: Nothing spared. You repaid your debt after 151 months (12.5 years).

Again, let’s say the same employment scenario is true, but in this case you have undergraduate and graduate debt which brings your total debt to $129,500. You now have a higher income, which we assume will also increase at a rate of 3.2% and you will repay for 25 years (300 month repayment term for higher education).

By the time your loans are canceled after 25 years, here’s how much you could save by not making 19 months of payments (depending on potential income):

  • Income of $70,000: savings of $20,275.
  • Income of $80,000: $23,609 in savings.
  • Income of $90,000: No savings. You have repaid your debt after 269 months (22.4 years).

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Anna Helhoski writes for NerdWallet. Email: [email protected] Twitter: @AnnaHelhoski.

The article Some Student Loan Borrowers Are 19 Months Closer to Forgiveness originally appeared on NerdWallet.