Navigating Student Loans: Understanding Reasons for a $0 Payment and Potential Pathways

Student loans can be a significant financial burden for many individuals pursuing higher education. However, there are situations where borrowers may find themselves with a $0 monthly student loan payment. Understanding the reasons behind this and the implications is crucial for effective financial planning. This article explores the various reasons why you might not have a required student loan payment right now, the nuances of deferment and forbearance, income-driven repayment plans, and the potential impact of policy changes on student loan obligations.

Initial Grace Period

One of the most common reasons for a $0 monthly student loan payment is being in a grace period. This period typically begins after graduation, allowing recent graduates time to adjust to life after college, secure employment, and establish a steady income. It can take a minute to get used to life after college. You have to figure out where you’ll be living and find a job with a steady income. While no payments are required during this time, it's important to remember that interest continues to accrue on the loan balance.

Imagine you took out a $10,000 student loan with a 6% interest rate for your first year of college. And no payments were required while in school, so you didn’t make any. When it comes time to make payments, 48 months later, you would have accrued $2,400 in interest. And when that capitalizes, your new loan balance would be $12,400. Even if no payments are required during a grace period, you can make payments whenever you want.

Deferment

If you're having trouble repaying your student loans, you may be eligible for various forms of student loan deferment, which would allow you to postpone your payments for a specified period of time. But it's your responsibility to contact either your lender or the organization servicing your loan to check if you qualify for such payment relief. Deferment is a temporary postponement of loan payments due to specific circumstances. Here are some of the reasons for deferment under which the law permits you to postpone repayment of your student loans:

Economic Hardship: Borrowers may qualify for student loan deferment of up to three years if they are experiencing economic hardship. If you were going through tough times, you might have applied for economic hardship deferment or unemployment deferment, which means you applied to delay making student loan payments. Deferment can be helpful if you need it. But it’s really a last resort.
Military Service: Active duty deferment is available for borrowers who are called to military service during a war, other military operation or national emergency.
Enrolled in or Returning to School: If you enroll in school at least half-time, your federal loans qualify for deferment. If you have previous federal loans they may also qualify for deferment if you decide to return to school.

Typically private loans may offer a deferment option; however, loans secured from private sources, such as banks, typically may not have military or economic hardship payment relief as part of their repayment terms. The terms of deferment do vary per lender and are included in the terms of the loan.

For subsidized Stafford loans, no interest will accrue during the period of student loan deferment. But for most other federal loans, interest will continue to accrue on your unpaid balance. If you do not pay that interest during the deferral period, it will simply be capitalized, or folded into the outstanding principal due on the loan. For private loans some lenders require interest payments while in-school and others may offer deferred. Check out our student financing resources, so you have access to all of the student loan information and tools that you need.

Forbearance

Another option for temporarily pausing student loan payments is forbearance. One crucial distinction is between deferment and forbearance. You generally need to apply for forbearance, and it’s up to your loan servicer whether or not they will grant it to you. Currently, the Department of Education has automatically placed some student loans in forbearance while lawsuits regarding the SAVE plan proceed through the courts. According to the Department of Education, Borrowers on the SAVE plan won’t have payments due until at least September 2025 and likely not until December 2025.

Continued Enrollment

Generally, federal student loans don’t require you to make payments if you’re still enrolled in college at least half-time. With unsubsidized student loans, interest accrues during school, and you are expected to pay it all back eventually.

Income-Driven Repayment (IDR) Plans

Another reason you might not have a required student loan payment right now because you enrolled in an income-driven repayment (IDR) plan. There are a few different types of income-driven repayment plans. These plans base the amount of your required loan payments on a percentage of your discretionary income instead of the amount you owe. You need to apply to be considered for an income-driven repayment plan. Enrolling in an income-driven repayment plan can help lower your monthly payment if you have federal student loans. In some cases, your payment could even be $0 per month.

One specific income-driven repayment plan is the Saving on a Valuable Education (SAVE) Plan. It’s worth highlighting because it’s a relatively new plan designed to provide the lowest monthly payments of any income-driven repayment plan - and it’s available to almost all student loan borrowers.

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The way it works is technical.
Okay, now this is huge. Something important to note about the SAVE Plan is that it includes an interest benefit that stops your balance from growing. As long as your new (lower) monthly payment is on-time each month, any unpaid interest beyond that amount is waived.
After reaching your repayment term, which is the amount of time you need to make payments before you can qualify for forgiveness, you’ll become eligible to have any remaining loan balance wiped away. The government evaluates all your loans eligible for the SAVE Plan to determine your eligibility for early forgiveness. Your repayment term depends on how much you originally borrowed for school and the details of that loan agreement. For example, if you originally borrowed less than $12,001 in undergrad loans, you could be eligible for forgiveness in as few as 10 years.

If you agree to share your tax info with Federal Student Aid, an office of the Department of Education, they’ll have information about any changes to your income and family size. They’ll automatically review and recertify your IDR plan and adjust your monthly payment once a year.

Factors Influencing Delinquency

As of October 2024, the government began reporting past-due student debt payments to credit bureaus again. The number of officially delinquent borrowers naturally surged as all past-due borrowers were reported at once. But the share of people overdue on their loans did not revert to pre-pandemic levels, they are now higher than pre-pandemic levels. If current trends continue, student loan defaults could soon reach record highs. The Department of Education projects the default rate could climb to as much as 25 percent.1 Some evidence suggests that poor communication between loan servicers and borrowers may be contributing to this rise in overdue payments.

The period since the start of the pandemic has been a tumultuous time for student loan borrowers, and other factors might be affecting their repayment behavior. Beyond the payment pause itself, many other aspects of debt repayment changed. At the same time, the Department of Education has announced that they will resume collections efforts on defaulted debt.7

This report attempts to answer these questions. Our first three findings suggest that part of the surge in overdue borrowers above historical levels is driven by factors other than financial hardship, such as administrative difficulties. If it is true that many households have the ability to repay their debts, then the number of overdue borrowers may return to historic levels in the near future, and these borrowers may not be affected by garnishment. However, the number of overdue borrowers will probably surge again with the end of IDR forbearance, and a portion of those borrowers may also be “administrative” delinquencies rather than hardship delinquencies.

To assess how overdue borrowers today are different than overdue borrowers before the pandemic, we compare the fraction of borrowers who are overdue, by income group, in 2019 to the fraction who are overdue in the 12-month period ending June 2025. Throughout this report, we use these two 12-month periods to measure income and other consumer variables, while delinquency and default status is taken from the last month of each period (December 2019 and June 2025, respectively). To measure spending, we use average spending by the household in the last six months of these time periods. Figure 1 shows that a smaller share of the lowest-income borrowers were overdue in 2025 than in 2019, and a higher share were overdue in all other income groups , with the highest-income borrowers showing the greatest increase . Part of this may be driven by IDR borrowers still being in forbearance due to court action around the Biden administration’s SAVE plan. IDR borrowers tend to have lower incomes, and it is likely that without this forbearance many of these lower-income borrowers would have missed payments by June 2025 along with the rest of the current wave. However, this does not explain why the share of the highest-income borrowers who are overdue has gone up by almost 50 percent, from 10.7 percent in 2019 to 15.6 percent in 2025.

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Is this surge in overdue payments among higher-income borrowers driven by a decrease in their financial security? If borrowers are less financially resilient today than pre-pandemic, that could explain an increase in overdue borrowers. Figure 3 shows that, among overdue households, student debt payments are less burdensome today than in 2019. To cover their debt payment, the typical low-income household who was overdue needed to spend the equivalent of 61 percent of their discretionary income in 2019 versus 33 percent in 2025. Other income groups also saw marked decreases.

Another way to assess whether the composition of overdue borrowers has changed is to look at missed payments on debts other than student loans such as credit cards, auto loans, or mortgages. A household having trouble paying its student loans is probably having difficulty with other debts as well. If more households that are overdue on student debt are current on their other debts as of 2025, it would suggest that this cohort of overdue borrowers is in a better financial position than past cohorts. Figure 4 shows the share of households in each income bin that were also at least 60 days past due on some debt that is not a student loan in the last 6 months of each sample period. The missed payment rate on non-student debt is high in both years, with rates higher for higher-income borrowers. These higher delinquency rates for higher income households are somewhat counterintuitive and are due to lower-income households holding less debt generally. A household can’t be delinquent on a debt it doesn’t have, and higher-income borrowers are more likely to qualify for and have other debts like credit cards, auto loans, and mortgages. More relevant for our assessment is the fact that non-student debt delinquencies are markedly lower for all income groups. It is much more likely in 2025 for a borrower to be overdue on their student loans, but current on all other debts.

Another way to assess whether borrowers might be unaware that payments were supposed to resume is to look at when borrowers last made a payment. If a borrower made some payments after the end of COVID forbearance and then stopped making payments, that would suggest that they knew payments had resumed but were unable to continue making payments due to financial hardship. If most overdue borrowers had resumed making payments at some point after October 2023, it would be much harder to believe a story where current delinquencies are driven by borrowers not knowing that the payment pause ended. Figure 5 shows how many overdue borrowers never made payments after the end of the COVID pause in October 2023. Even among the highest-income borrowers who were the most likely to have made a payment since the end of the pause, a majority (54 percent) never resumed payments.

Whether recent delinquencies are driven by economic hardship or communication difficulties, borrowers that continue to be delinquent will eventually default on their loans. For federal student loans, default officially occurs once a borrower is 270 days past due. At that point, they may have up to 15 percent of their after-tax wages garnished. Historically, very few defaulted borrowers have had their wages garnished.

Potential Impact of Garnishment

We assess how burdensome garnishment might be for borrowers in our sample by estimating each overdue household’s garnishment amount (15 percent of take-home payroll income) and comparing it to the borrower’s average monthly budget allocation-savings, leisure spending, non-leisure discretionary spending, and non-discretionary spending.11 We define “leisure” spending as the portion of discretionary spending that goes toward restaurants, entertainment, travel, and miscellaneous non-clothing retail shopping.

Figure 6 shows how households will have to adjust their budgets to account for the 15 percent drop in take-home payroll income. (Appendix Figure A2 repeats this exercise for all kinds of income, in case some of that income is also subject to garnishment. It shows similar results.) These budgetary adjustments are similar across income groups, likely driven by several factors. First is that garnishment mechanically scales with income because it is a fraction of income. Second is that higher-income households are more likely to take advantage of pre-tax spending and saving programs like 401(k) retirement accounts and employer sponsored health insurance. This makes high-income households’ take-home income appear artificially low in our data and will understate their ability to adjust to garnishment. Third, consumption of many essential goods scales with income-higher-income households buy larger houses and nicer cars and so the share of their budget used on “essential” spending is fairly similar to that of lower-income households (Schanzenbach et al.

While many borrowers will be able to adjust without significant hardship, a significant portion will have to reduce their non-discretionary spending. This could lead to significant hardship and an increase in non-payment of other bills and debt obligations. Between 14 and 21 percent of households (depending on income group) will not have to adjust their spending at all-the income lost to garnishment is less than or equal to the amount the household adds to its savings every month. Roughly 65 percent of overdue borrowers might be able to reduce their leisure spending enough to leave their other spending untouched.

Even those that will not have to decrease their non-discretionary spending will have to make significant adjustments. In each income group, the garnishment amount is equivalent to about 40 to 50% of discretionary income for the median (50th percentile) borrower household in that income group.

Overall, our findings suggest the current share of borrowers overdue on their student debt is not higher than it was in 2019 because of increased financial vulnerability among overdue households. We find that, compared to 2019, the share of overdue borrowers has risen most among high-in…

SAVE Plan and Forbearance

The Education Department announced on Wednesday that several million student loan borrowers will likely have no payment obligations for most of 2025 as legal battles over the future of student loan forgiveness under certain repayment programs continue. The new information was released as the SAVE plan, a key feature of the Biden administration’s student loan relief plans, remains blocked due to legal challenges. And student loan forgiveness under several other income-driven repayment plans is also currently enjoined.

The Education Department’s announcement comes as a litigation continues over the future of several income-driven repayment, or IDR, plans.

IDR plans use a formula based on a borrower’s income and family size to determine their monthly payments. Under current federal law, those who enroll in IDR plans are entitled to student loan forgiveness of any remaining balance after 20 or 25 years in repayment, depending on the specific plan. Using longstanding legal authority provided by the Higher Education Act, the Biden administration launched a new IDR plan in 2023, called the SAVE plan. SAVE is designed to be far more affordable than older IDR options, with additional benefits including interest subsidies and faster student loan forgiveness for certain borrowers.

But months after the program debuted, a group of Republican-led states filed a legal challenge to stop it. In August, a federal appeals court sided with the states and issued an injunction blocking most elements of the SAVE plan including student loan forgiveness, lower payments, and interest subsidies. The court also ordered a halt to student loan forgiveness under two other IDR plans that were created using the same legal authority under the Higher Education Act - the ICR plan and the PAYE plan. The IBR plan, which was created separately by Congress, is not directly impacted.

Because the Biden administration was prohibited from implementing most features of the SAVE plan, more than eight million borrowers who had applied for, enrolled in, or switched to the program were placed into a forbearance. “Servicers expect to complete the necessary technical updates to be ready to begin moving borrowers back into repayment no earlier than September 2025. Because this transition will take time, servicers expect first payments to be due no earlier than December 2025.”

In addition, the department also indicated that annual income recertification deadlines for covered borrowers will be pushed out even further, to sometime in 2026. Typically, borrowers in IDR plans must recertify their income every year to have their IDR plan payments recalculated as they pursue student loan forgiveness.“Because SAVE Plan borrowers will be in a general forbearance until the fall of 2025, ED is directing loan servicers to change IDR plan anniversary recertification deadlines,” continued the department. “The first recertification deadline for SAVE borrowers will be no earlier than Feb. 1, 2026. Recertification deadlines will occur on a rolling basis. Borrowers will receive information from their servicers on their specific recertification timeline. We encourage you to visit StudentAid.gov and provide consent for auto-recertification of your IDR plan if you are eligible. By doing so, we'll automatically recertify your IDR plan by its recertification deadline. This will ensure you remain enrolled in SAVE.”The department confirmed that student loan forgiveness remains blocked for the SAVE, ICR, and PAYE plans, but is open under the IBR plan.

Changing Plans

While having no payments for most of 2025 will be welcome news for borrowers covered by the SAVE plan actions, there is a cost: the time spent in the forbearance does not count toward student loan forgiveness under IDR or Public Service Loan Forgiveness, a separate but related program that can wipe out a borrower’s federal student loan debt in as little as 10 years. During the forbearance, “you do not have to make your monthly payments on your student loans, interest is not accruing, and time spent does not provide credit toward Public Service Loan Forgiveness (PSLF) or IDR,” reiterated the department on Wednesday. While borrowers can make payments on their student loans during the forbearance, those payments will be applied to future bills - they will not count toward loan forgiveness.

Borrowers who want to leave the SAVE plan forbearance to resume progress toward student loan forgiveness for IDR or PSLF will need to change to a different qualifying IDR plan.“Borrowers who do not want to be in this forbearance can contact their servicer to change repayment plans,” says the department. Given the long period of no payment obligations, the extended timeline will “give borrowers the opportunity to make another choice for repayment, based on which of the updated options is best for them.”Earlier this month, the Education Department formally resumed processing applications for the ICR, PAYE, and IBR plans, although borrowers should expect lengthy delays. Borrowers should also be aware that while the ICR and PAYE plans were reopened in December, loan forgiveness as a feature of those plans remains blocked due to the 8th Circuit’s court order. Student loan forgiveness as a feature of the IBR plan is not blocked, however.

Private Student Loans

While income-driven repayment plans like SAVE are available to federal student loan borrowers, private student loans are another deal. Private student loans come from banks and financial companies. Those lenders are not required to lower your payments or forgive anything. And private student loans generally have higher interest rates, too.

The Future

With the Trump administration set to take over next week, the timelines outlined in this week’s Education Department announcement could potentially change. And so could borrowers’ options.“Borrowers will be informed of any further change to this litigation-related forbearance,” noted the department.House Republican leaders have called for significant student loan reforms to be included in an upcoming reconciliation bill, which would be able to pass the House and Senate via party-line votes with a simply majority. It is not quite clear yet what may be included in this as-yet drafted bill, but it could include a repeal of time-based student loan forgiveness under IDR plans.

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