New Federal Relief for Student Loan Borrowers: What Does It Mean for You?
In the wake of COVID-19, the federal response to help borrowers with student loans has been swift and sweeping. On March 13, 2020, the federal government temporarily suspended interest on student loans and collections on defaulted loans. It also offered to suspend repayments for borrowers who requested it. Two weeks later, Congress passed and President Trump signed the CARES Act (Coronavirus Aid, Relief and Economic Security), which includes student loan relief beyond the March 13 efforts.
The CARES Act: Student Loan Relief
- The Department of Education suspended payments on all federally-held student loans from March 13 – September 31, 2020. Servicers had to implement these changes by April 10, 2020. The pause in payments has since been extended several times, and the current extension was supposed to end December, 2022.
Due to open litigation surrounding the proposed student loan forgiveness program, however, the U.S. Department of Education extended student loan forbearance once more. According to the department's announcement on November 22, 2022, "Payments will resume 60 days after the Department is permitted to implement the program or the litigation is resolved, which will give the Supreme Court an opportunity to resolve the case during its current Term. If the program has not been implemented and the litigation has not been resolved by June 30, 2023 – payments will resume 60 days after that." Read the full press release here.
- The Department must suspend collection activity on loans, including those in default. Tax offsets, wage garnishments, and federal benefit offsets (such as seizing Social Security benefits) will stop. The U.S. Department of Education contiued this suspension into 2023 in its November 22 announcement mentioned above.
- You can be reimbursed for any payments taken after March 13, 2020. If there was an auto-debit or manual payment on your loans, you can request to have it refunded. Administrative wage garnishments, federal benefit offsets, and tax offsets will be automatically refunded only if they occurred after March 13.
- The CARES Act provides for 0% interest on all federally-held student loans starting on March 13, 2020, regardless of the status of the loan. This includes Direct Stafford Loans, Parent PLUS Loans and Federal Family Education Loans (FFEL) held by the federal government. The pause on interest now extends into 2023, due to the U.S. Department of Education's November 22 announcement mentioned above.
- If you are pursuing Public Service Loan Forgiveness or making payments to rehabilitate defaulted student loans, the months that your loan payments are suspended will count towards forgiveness or rehabilitation, not set you behind. With Public Service Loan Forgiveness, you currently must still be employed full-time during the suspension for payments to count.
- If you had to withdraw from school because of COVID-19, the Secretary of Education must cancel your direct loans for the payment period in which you withdrew.
What the CARES Act does and doesn’t cover
- The CARES Act applies only to federal student loans. That includes all Direct Loans, as well as FFEL and Perkins Loans currently held by the U.S. Department of Education. Commercially-held FFEL Loans and Perkins Loans held by schools, as well as private student loans, are not covered. Contact your loan servicer to find out if your loans qualify.
- The CARES Act does not cover private student loans. However, some private lenders are offering temporary payment relief for those who are financially affected by COVID-19, but not interest relief. While this NerdWallet article is a good place to get more information, the best place to start is with your loan servicer to find out your eligibility.
Some questions remain
- How will deadlines to recertify for Income Driven Repayment Plans be affected by these changes?
- How will the administration handle student loan interest that accrued before March 13 if your student loan repayments were temporarily deferred, stopped/reduced (called forbearance) or on an Income Driven Repayment Plan?
Normally when you enter repayment, end a forbearance/deferment, change payment plans or consolidate loans, the outstanding interest is added to your loan balance, or “capitalized.” If interest accrued before March 13 is added at the end of the federal suspension period, you might have a larger balance than before.
Get accurate information and support
Things are changing rapidly with student loans. The best places to get information about student loans and program changes are Federal Student Aid and Student Loan Borrower Assistance, an advocacy group for student loan borrowers.
If you still have questions, want to weigh your options, or need assistance with private student loans, a free session with an LSS Student Loan Repayment Counselor will help you get answers and stay on track. Call 888.577.2227 and schedule your free, confidential phone session today. We are all in this together!
Author Shannon Doyle is a Program Manager with LSS Financial Counseling.