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As Johnnie Cochran would say: if the interest rate's nil, don't pay that bill!

Ask the Bitches: “The Government Put My Student Loans in Forbearance. Can I Really Stop Paying—or Is This a Trap?”

So… I made a mistake.

Our Patreon donors have been so wise with choosing quality topics in the past. So this month, I invited our supporters to pitch article topics directly to us.

Sounds great, right? WRONG. This was a huge mistake because all of our supporters’ ideas are fucking great! Now I have no choice: I simply must write them all. When am I supposed to do my life’s most important work: incorrectly cutting the wood for my woodworking project, then driving to Lowe’s to buy more wood???

This is technically incorrect. Piggy is the Chip.

One question stood out as being particularly time-sensitive, so today I’m answering this question from Patreon Rachel, who we all know to be so glitteringly beautiful that she’s regularly mistaken for an ice sculpture of herself:

I’d love to know your thoughts on U.S. federal student loans currently being deferred with no interest. Is it smart to continue to make my regular payments? Or should I stop making payments and use that money to invest in other things?

– Patreon Donor Rachel

An excellent question! Today we’ll address the basics of student loan forbearance, including how it pertains to the CARES Act. (That’s the $2 trillion stimulus package we explained here.)

Luckily there’s a fairly definitive answer, which I am just barely capable of explaining in human speech. Let’s get into it!

What is forbearance?

The word “forbearance” is fancy, old-fashioned, and deeply foreboding: the Hill House of financial terminology.

But it’s a pretty simple concept. “Forbearance” is a temporary postponement of repayment on a loan. Basically, whoever lent you money—a bank, a credit card company, the gubern’mint—has pressed pause on your payments so you have time to get your shit together.

You can request forbearance at any time, but lenders are much more likely to agree to it if you’re facing a significant hardship: you lost your job, you got very sick, you watched Darren Aronofsky’s Mother! from start to finish, and so on and so forth.

Under normal circumstances, the terms of every forbearance agreement are unique. Twelve months is a fairly standard timeframe. You could make no payments, or smaller payments—it all depends on what kind of agreement you make with your lender.

How is that different from deferment?

You may have heard of something called “deferment.” When I was a baby bitch, I was told that deferment and forbearance are different, and that deferment is always better. The reason: deferred loans did not accrue interest, but forborne loans did—a distinction I’ll explain more clearly below.

Anyway, that is OLD, BAD ADVICE! Don’t follow it. Here’s why.

In actual practice, not every lender uses the same language to describe the same terms! Just because your lender’s website uses the word “deferment” instead of the word “forbearance,” it does not automatically mean you’re getting a better deal. You must always check the terms for yourself and ask for a clarification if you’re not sure. That’s why I encourage you to assume that deferment and forbearance mean the same thing.

The better, more precise version of that advice is: a postponed loan agreement is a much better deal for you if the loan’s interest is also paused. 

Let’s make things more… interest-ing…

Pfffffff hahahaha I’m so fucking funny, I can’t even—

Okay, let’s explain interest in very simple terms. Feel free to skip this section if you already understand what interest is.

Let’s say Piggy and I are strolling along, somewhere very glamorous—Peoria?—and we run across a vending machine. I lose my mind because there’s a Take Five in there, and nobody sells Take Fives anymore! Which is so fucking confusing because they are nearly perfect candy bars!

Naturally, I am attuned with the rarity this opportunity presents me. I want this Take Five real bad. The problem is that I don’t have $1 on me. Piggy agrees to lend me $1, but only if I promise to pay her back tomorrow, plus another $1 for her trouble (rude). It’s not a great deal, but I really want that Take Five, so I agree to cough up $2 tomorrow.

Of that $2, the first dollar is the principal, or the original amount I borrowed. The second dollar is the interest, or the profit that Piggy makes off the loan.

When you’re trying to determine whether forbearance is a good deal or not, it’s vital that you understand how the forbearance impacts your loan’s interest.

Will the interest accrue or not?

Okay, so forbearance sounds like a pretty sweet deal, right? You get more time to pay off your loan, and your lender still gets paid in full. Awesome! Win-win, right?

Wrong!

Obviously!

Bitch please, this is CAPITALISM! No big bank is ever gonna do nice shit for you for free, like they cherish the virtue of generosity or whatever. Psh.

In many cases, your lender will only agree to press pause on your repayments if they continue to accrue interest. By the curiously OP nature of compounding interest, a loan that’s left to sit collecting dust will soon grow completely out of control. It’s a whole Little Shop of Horrors situation.

To illustrate that, let’s continue to use this highly relatable Take Five situation to illustrate the difference.

Scenario one: Interest on the loan does not accrue

Piggy: Hey, remember how you borrowed $1 from me yesterday, and promised to pay me back $2 today? Well, I’m ready. Give me those Washingtons so I can rub their faces together and make it look like they’re kissing.

Kitty: Uhhhhhh I actually don’t have the $2. Can I pay you back next week instead?

Piggy: Ugh. Fine. Gimme the $2 next week. I’m never facilitating your impulse snacking again!

Rocks fall; everyone dies.

In this case, forbearance is a great deal for me, and a crap deal for Piggy. I get to alter the terms of the loan to work with my timeline, and she has to wait patiently to get her money back, sacrificing whatever she’d planned to do with it in that week (probably buying non-Cheez-It-brand cheese crackers, let’s be real).

Obviously when we’re talking about candy bar money, that ain’t much! But when you owe your student loan facilitator tens of thousands of dollars… yeah, you’d better believe they had plans for that money! And they do not appreciate those plans being fucked with.

Scenario two: interest on the loan accrues

Piggy: Hey, remember how you borrowed $1 from me yesterday, and promised to pay me back $2 today? Well, I’m ready. Beluga sevruga, come winds of the Caspian Sea. Larengix glaucitis, et max laryngitis, la two dollars to me.

Kitty: Uhhhhhh I actually don’t have the $2. Can I pay you back next week instead?

Piggy: But of course! You’ll simply have to keep paying me $1 in interest every day until I get my money back.

Kitty: Huh? Wha? Sorry, I wasn’t really listening, I was thinking about how beautiful horses are. Sure, sure, whatever, next week!

One week later…

Piggy: You now owe me $8.

Kitty: WHAT!

Light swirls around Kitty. She shrinks down into one of those little gross seaweed lookin’ things.

Piggy: Ohohoho, at last. It’s mine

Piggy scoops up Kitty’s crown and magic trident. Our August Patreon poll will ask: How many The Little Mermaid jokes are too many? Regardless, rocks still fall; everyone still dies.

I’m being ~ p l a y f u l ~ because that’s our Brand Promise™. But what I’m trying to illustrate here is a very real system of economic oppression. This inequality is the foundation our normal, everyday financial systems are built upon. Poverty and instability are the fuel that runs the machine of capitalism. Corporations run by those with money feast on the impoverishment and instability of those without it, converting the human suffering into ever more concentrated wealth.

Rich people charge poor people money to have money. And then they charge them money to not have money.

Cool.

So uh, should I take advantage of loan forbearance or not?

If your lender offers you forbearance terms where no new interest will accrue on your outstanding principal, that is a great deal. Take it!

You won’t owe any extra money in the long run. And you can put the money to much better use. Even if you can afford to continue making payments, I would personally rather add those payments to my emergency fund until the forbearance period was set to end. There’s no real benefit to paying it off immediately if the money is being lent to you “for free” during the forbearance period.

If your lender offers you forbearance terms where interest will continue to accrue on your outstanding principal, this is a mixed bag. Whether you should take it or not really depends on your situation.

On one hand, it will cost you more money in the long term, and may interfere with student loan forgiveness eligibility. It’s also sort of like an extra life. Your lender may give you one—but they are far less likely to give you a second or third.

On the other hand, if you’re out of work and totally unable to pay your loans, this may be your best choice. Paying more in the long run might be the price you have to pay for your bad luck. (Once again, may I reiterate, this system suuuuuuucks!) I would urge you to exhaust all other options before accepting this kind of forbearance.

What about the CARES Act?

In response to the coronavirus pandemic, federal student loans have been placed in automatic forbearance from March 13 to September 30, 2020. No interest will be charged to lenders during this time. And now y’all have the tools you need to understand that in almost all situations, this is a fantastic deal.

Please note that this only applies to federal loans owned by the Department of Education. If your loans are private, you’ll have to talk to your private student loan lender. Each one will have their own policies and criteria around forbearance.

If you had a more unconventional federal loan (for example, one with work study requirements), check out this FAQ. If you’re not sure if your loan is covered, ask your student loan servicer by going to StudentAid.gov or calling 1-800-4-FED-AID (TTY: 1-800-730-8913).

And if the federal government extends the program, keep taking advantage of it. If the interest rate’s nil, don’t pay that bill!

What if I want to keep making payments?

You can if you want to! The government will continue to process payments, so there’s nothing stopping you.

However, I would not recommend making payments on federally forborne loans unless you have a great reason for doing so. There’s really no benefit to making payments on such a loan during this time, as opposed to, say, saving the money up and making one big lump payment at the end of forbearance. And there are lots of great ways to reinvest it in better areas.

  • Start or grow your emergency fund. That’ll give you more cushion if you lose your job or get sick. And once you’re out of the woods, you can still use what you saved during forbearance to pay off the loan.
  • Eliminate credit card debt. It almost certainly has a higher interest rate (and thus is more expensive to you in the long run) than your student loans.
  • Direct the funds toward private student loans that are not forborne. Odds are good their interest rate is also worse than the federal loans.
  • Shop locally. If you’re rock solid and you really don’t think you need any of those things, I’d rather you kept the money circulating in your community than sending it back to the federal government. Think of the non-chain stores you want to stay afloat, and buy something from them. Leave huge tips for patio servers and delivery drivers. Become a patron of artists you like. (LIEK US.) Any of those actions would better fulfill the spirit of the CARES Act: to keep the economy moving.

So many markets are unstable right now: jobs, housing, health, supplies… You’ve got six months of borrowed time. Use them wisely!

Thanks again to Patreon Rachel for asking this question. She is an effervescent, scintillating living statue of frozen glass for suggesting such a helpful question. If you’d like to pitch article ideas to us, you can on our Patreon!

Bitch Nation, how are your student loans doing? Do you have loans that qualify? Are you taking advantage of the forbearance? Tell us all about it in the comments below!

10 thoughts to “Ask the Bitches: “The Government Put My Student Loans in Forbearance. Can I Really Stop Paying—or Is This a Trap?””

  1. Your advice makes perfect sense. However, I have this huge aversion to debt and my only current debt is about $5,600 remaining on student loans. Since I’m 62 I really want to pay that sucker off before I hit retirement, LOL. And since my manageable $100.00 a month payment currently all goes to principal I’m saving about $28 a month interest and when the interest kicks in again in the fall I’ll be paying it on a lower balance. (reverse compounding or something?) Just a personal preference / quirk.

  2. I got my student loan balance down past a major psychological milestone. Now I’m pausing payment to have a local plumber do some long-deferred maintenance

  3. I plan to make a large lump sum payment on my massive unsubsidized graduate school loan with 6.2% interest in September prior to interest kicking back in so I can lower the principal a few thousand in one fell swoop. It’s really tempting not to pay off one of the little loans, but they have nearly half the interest rate so I know that’s not the best decision.

  4. Another note for those of us utilizing the Public Service Loan Forgiveness (PSLF) program: These non-payment months will still count towards your 120 payment requirement for the program. I called FedLoan and had them explain it to me slowly and carefully before I chose to not make payments during auto-forbearance–and I have been using that money to pay down my credit card debt instead!

    1. Oh my gosh I didn’t even think of this and I am in the same boat as you – thank you so much for thinking of this, looking into it, and sharing!

      1. I’m still working and I am technically able to make my regular payments–so when I called them and was like “but if I recognize this forbearance and don’t make payments, that sets me back on forgiveness 6 months” they said the auto-forbearance still counts as payments and does not set me back. And I asked again to confirm, and they said no, it won’t set me back. I kept that poor woman on the phone longer than necessary, but I’m really about that forgiveness life over here (and I already took a deferment when I bought my house & got a divorce in the same 3 month span, I’m not trying to do that again)

    2. Another to about PSLF. If you choose to make payments while your loans are in a mandatory forbearance (like they are now, because of the CARES Act), your payments will NOT count towards the 120 payments you need for forgiveness.

  5. I wish I could put a gif in here of my reaction to y’all’s compliments, wherein I blush furiously and hide from the spotlight. Stahhhhhp it. I don’t deserve such stunning compliments. Y’all are gonna make me explode into a cloud of glitter.

    For the record, as a fairly finance savvy person, when I heard that federal student loans were going into auto forbearance with no interest, I was like “SCORE MOTHERFUCKERS!” and quickly did the math on which was more advantageous: stopping payments and investing the $3.5K I’d have paid elsewhere, or continuing payments so when my loans came out of forbearance and interest kicked back in, I’d save money in the long run by having a lower principal. The math told me I’d save a little over $1K in the long run by paying $3.5K now, so for me it was a no brainer. I’d instantly get 3.5x the savings by not making payments, even if all I did was stick that money into a low interest savings account (which I’d never do! *shudder*). So I am padding the fuck outta my emergency fund; next stop: 12 months of living expenses in the bank!

  6. My boyfriend’s last student loan has $600(ish) left and was automatically forebeared. We’re using these next couple months to chip even more aggressively away at my car loan than we were previously and are down nearly $3k since quarantine started between that money and money we’re saving on gas from not driving. Looking forward to getting rid of that $600 in one fell swoop in October, though!

  7. I have some Federal loans that didn’t qualify (real cool, DoE) so am trying to tackle extra payments on those! Right before the forbearance ends, I’ll go back to tackling my highest-rate loans but it doesn’t make sense to do so now when things are still so uncertain.

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