As the federal loan forbearance has been extended through December 31, 2022 questions have arisen regarding the effects on LIPP eligibility if participants choose to continue or begin utilizing the forbearance.
We are not aware of how the different servicers will adjust loan payments once the federal forbearance ends so we have included a few different scenarios below to help participants make an informed decision. No matter which scenario a participant chooses the LIPP assistance will always be based on a maximum of the pre-CARES Act payment amount.
Scenario 1: Current LIPP participant with required federal loan payments of $2,000 and choosing to continue to make monthly payments during federal forbearance.
- LIPP will continue to cover the loans at $2,000/month throughout the forbearance. Once loans enter back into repayment LIPP will continue to cover the payments at $2,000/month even if the new required payment, as determined by the servicer, is less.
Things to consider
- In this option the participant will most likely end up paying their loans off in less than 10 years since any post-forbearance payments will be larger than what is required, and all payments made during the period of forbearance are applied directly to principal.
Scenario 2: Current LIPP participant with required federal loan payments of $2,000 and choosing to suspend payments during federal forbearance.
Once loans enter into repayment LIPP will cover the participant at a maximum of their pre-CARES Act loan payment amount of $2,000/month – regardless of the new required monthly payment amount as determined by the servicer.
- If the servicer extends the repayment to account for the suspension time the required loan payment may not change and the participant would continue receiving assistance based on $2,000/month.
- If the servicer keeps the repayment on a 10 year term the required monthly loan payments would increase, however LIPP will continue to cover the loan at the pre-CARES value.
Things to consider
- In option 1 the participant would keep their same LIPP eligibility even after months of no payments.
- In this option the total repayment time would be longer than 10 years.
- In option 2 the total loan repayment time would remain at 10 years.
- In this option the participant’s LIPP eligibility will decrease based on their new required loan payment amount and the fact that they will have a higher out of pocket payment since a portion of their new payment will not be covered by LIPP.
Scenario 3: New graduate with federal loans that have not come due yet due to the federal forbearance.
- If the participant wishes to enter repayment and receive LIPP they will need to reach out to their servicer to request that their loans are taken out of the Federal Forbearance.
- If the participant wishes to remain in forbearance they would not receive LIPP assistance for any Federal loan. They may apply for LIPP for any other loans they have but may not qualify if the required payments are less than their calculated participant contribution.
Things to consider
- In option 1 the participant will begin making payments towards their principal balance immediately and the loan may be paid down in less than 10 years.
- In option 2 the participant would not have federal loan payments until the loans enter repayment.
- The participant would also be missing an opportunity to make immediate payments towards their principal balance.