SACRAMENTO, Calif. —

Millions of federal student loan borrowers are breathing a sigh of relief now that they don't have to make payments for six months.

Under the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, payments for federally held student loans are suspended until Sept. 30, 2020. Interest is set at 0% for defaulted and nondefaulted Direct Loans, defaulted and nondefaulted Federal Family Education Program loans (FFEL) and Federal Perkins Loans, according to Federal Student Aid, an office of the U.S. Department of Education.

"From the Department of Education perspective, they have a choice of either putting people in positions where they can’t pay and then we’re talking about delinquencies, defaults, collection agencies, or they can be kind and forgiving, which will increase the chance they’ll be paid later," said David Lang, professor and chair of the economics department at Sacramento State University.

Borrowers of federal loans are automatically put into the "COVID-19 related administrative forbearance," but they can choose to continue making payments.

RELATED: Financial relief during the coronavirus: More ways to get help besides the stimulus check

Lang said it's reasonable to defer student loan payments during the pandemic.

"The interest you’re paying is much lower than a credit card or any other loan you’d be able to get. So, if you need to extend your loan payment into the future a little bit, that isn’t a crisis. Not being able to feed your family or pay rent is a crisis," he said.

In an email to ABC10, the Department of Education said no interest will capitalize as a result of the administrative forbearance. But a borrower’s individual situation may involve interest accrued before the administrative forbearance began. 

"Interest that accrued prior to the non-capping, COVID-19-related administrative forbearance may capitalize after Sept. 30, 2020, if the loan status—prior to the COVID-19-related administrative forbearance—was either a deferment or some type of interest-capping forbearance," the Department of Education said in an email. "The expiration of the COVID-19-related administrative forbearance could trigger a capping event based on the borrower’s individual circumstances."

Lang said student loans is a big category and not all student loans are the same across institutions.

"Because of the variety, it can be a lot of different fine print, so individuals should definitely consider their own situation and read the fine print."

RELATED: You could get a $2,000 per month stimulus check under proposed bill

The Department of Education broke down several ways borrowers with different repayment statuses prior to the COVID-19 administrative forbearance may be affected once the suspension ends.

Example 1: Borrower is in a current repayment status prior to the COVID-19 administrative forbearance being applied

  • Borrower owes $10,000 principal and $2.50 interest as of March 12, 2020.
  • Borrower is placed in an administrative non-capping forbearance from March 13, 2020 to Sept. 30, 2020.
  • No interest accrues from March 13, 2020 to Sept. 30, 2020 because of the 0% interest rate.
  • On Oct. 1, 2020, the borrower owes $10,000 principal and $2.50 interest. No capitalization occurs.

Example 2: Borrower is delinquent two months prior to the COVID-19 administrative forbearance being applied

  • Borrower didn’t make their $100 payment due on Jan. 21, 2020 or the $100 due on Feb. 21, 2020.
  • Borrower owes $10,000 principal and $73.25 interest as of March 12, 2020.
  • Borrower enters administrative non-capping forbearance from March 13, 2020 to Sept. 30, 2020. As part of this process, the Department applies an administrative forbearance from approximately Jan. 21, 2020 to March 12, 2020 to resolve the prior delinquency.
  • No interest accrues from March 13, 2020 to Sept. 30, 2020 because of the 0% interest rate.
  • On Oct. 1, 2020, the borrower owes $10,000 principal and $73.25 interest. No capitalization occurs.

RELATED: California to spend extra $42 million to help foster youth during pandemic

Example 3: Borrower is on an Unemployment Deferment prior to the COVID-19 administrative forbearance being applied.

 This deferment was to cover the period Jan. 21, 2020 through July 21, 2020 (ending prior to the end of the COVID-19-related administrative forbearance).

  • If the COVID-19 emergency had not occurred, this borrower’s interest would have capitalized at the end of the Unemployment Deferment on July 22, 2020.
  • Borrower owes $10,000 principal and $73.25 interest as of March 12, 2020. The $73.25 is interest that accrued during the deferment period to March 12, 2020.
  • Borrower enters administrative non-capping forbearance from March 13, 2020 to Sept. 30, 2020. The Department shortens the Unemployment Deferment to end on March 12, 2020; the Unemployment Deferment is superseded by the COVID-19-related administrative forbearance.
  • No interest accrues from March 13, 2020 to Sept. 30, 2020 because of the 0% interest rate.
  • The capitalization that previously would have happened at the end of the Unemployment Deferment (on July 22, 2020) is delayed until the end of the administrative forbearance period.
  • On Oct. 1, 2020, the borrower owes $10,073.25 principal and $0.00 interest. Capitalization occurred as a result of the end of the deferment period, but at a later time than it would have if the forbearance had not been applied.

Example 4: Borrower is on an Economic Hardship Deferment prior to the COVID-19 suspension being applied.

 This deferment was to cover the period Jan. 21, 2020 through Jan. 21, 2021 (will end after the COVID-19-related administrative forbearance period)

  • If the COVID-19 emergency had not occurred, this borrower’s interest would have capitalized at the end of the Hardship Deferment on Jan. 22, 2021.
  • Borrower owes $10,000 principal and $73.25 interest as of March 12, 2020. The $73.25 is interest that accrued during the Hardship Deferment period to March 12, 2020.
  • Borrower enters administrative non-capping forbearance from March 13, 2020 to Sept. 30, 2020. The Economic Hardship Deferment ends on March 12, 2020; it is superseded by the COVID-19-related administrative forbearance.
  • No interest accrues from March 13, 2020 to Sept. 30, 2020 because of the 0% interest rate.
  • The capitalization that would have previously happened at the end of the Economic Hardship Deferment (Jan. 21, 2021) is still slated to happen in January 2021.
  • On Oct. 1, 2020 the borrower owes $10,000.00 principal and $73.25 interest. No capitalization occurs on Oct. 1, 2020.
  • The borrower is placed back onto the Economic Hardship Deferment beginning Oct. 1, 2020 through Jan. 21, 2021 to complete the time period in deferment for which the borrower qualified.
  • The borrower’s interest (the $73.25, plus interest that accrues from Oct. 1, 2020, through Jan. 21, 2021) will capitalize on Jan. 22, 2021 at the end of the deferment.

RELATED: How Cal State is navigating the coronavirus: Your questions answered

Example 5: Borrower is in their grace period (have completed school) prior to the COVID-19 suspension being applied. 

The grace period is scheduled to end on Aug. 15, 2020 and borrower is scheduled to enter repayment on Aug. 16, 2020 with their first payment due Sept. 7, 2020

  • If the COVID-19 emergency had not occurred, this borrower’s interest would have capitalized at the end of the grace period on Aug. 16, 2020.
  • Borrower owes $10,000 principal and $200 interest as of March 12, 2020. The $200 is interest that accrued and has not been paid through March 12, 2020, while the borrower was in school.
  • The borrower remains in his grace period until that grace period ends on Aug. 16, 2020.
  • At that point, the borrower’s accrued interest capitalizes (as is always done at the end of the grace period), and the borrower enters repayment status, but is immediately placed into the COVID-19-related non-capping administrative forbearance from Aug. 16, 2020 to Sept. 30, 2020. The borrower owes $10,200 principal and $0.00 interest.
  • No interest accrues from Aug. 16, 2020 through Sept. 30, 2020 because of the 0% interest rate.
  • On Oct. 1, 2020, the borrower owes $10,200.00 principal and $0.00 interest. No capitalization occurs on Oct. 1, 2020.

FOR THE LATEST CORONAVIRUS NEWS,
DOWNLOAD OUR APP:

Download on the App StoreGet it on Google Play

►Stay In the Know! Sign up now for the Daily Blend Newsletter

WATCH ALSO: Daily Blend: 70,000 California students to receive laptops to assist in distance learning