On March 27, 2020, President Trump signed the CARES Act stimulus bill in response to COVID-19. Included in the legislation are new rules for student loan relief that supersede the rules announced only a week earlier by the Department of Education. Here are answers to some frequently asked questions about the new rules. For more information and to follow subsequent potential rule modifications, visit the federal student aid website.
Does the relief apply to all student loan borrowers?
No. Only borrowers with outstanding federal student loans—not private student loans—are eligible. In addition, only federal student loans owned by the Department of Education are eligible. This includes Direct Loans (which includes PLUS Loans), as well as Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans held by the Department of Education. (Note: some FFEL Program loans are owned by commercial lenders, and some Perkins Loans are held by educational institutions. These loans are not eligible for relief at this time.)
What specific relief is being offered?
There are three parts to this relief:
- Interest Waiver: All borrowers with eligible federal student loans will automatically have their interest rates set to 0% beginning March 13, 2020 through September 30, 2020.
- Suspension Period: In addition, borrowers have an automatic six-month suspension (administrative forbearance) of their student loan payments. This six-month period ends on September 30, 2020. Borrowers do not need to contact their loan servicer to request the suspension – they will automatically be placed on administrative forbearance. Under the previous policy recently announced by the Department of Education, the payment suspension was for two months and it was not automatic, requiring borrowers to contact their loan servicer to opt-in.
- Temporary Employer Incentive: The Act also provides a temporary incentive for employers to pay down their employees’ student debt balances. Specifically, employers can contribute up to $5,250 toward an employee’s student debt through December 31, 2020 without any tax consequences to the employee.
What happens with auto-debit payments?
Automatic debit payments are suspended during this period. Any manual or auto-debit payments processed between March 13, 2020, and September 30, 2020 can be refunded. Borrowers should contact their loan servicer if they wish to request a refund.
Before the administrative forbearance period ends, the loan servicer will contact the borrower to remind them that they need to start making payments again.
How can borrowers contact their loan servicer?
A loan servicer is the company you make your monthly payments to. Borrowers should contact their loan servicer online or by phone. For borrowers who do not know who their servicer is or how to contact them, they can visit the federal student aid login or call 1-800-4-FED-AID for assistance.
Can borrowers keep paying their federal student loans?
Yes. Borrowers are still able to continue their student loan payments as usual. They need to contact their loan servicer to opt-out of the administrative forbearance period and their auto-debit payments will resume. They also have the option to remain in the administrative forbearance and make full or partial manual (not auto-debit) payments whenever they want during the administrative forbearance period. They can visit their loan servicer’s website to make a payment.
During this period of 0% interest, the full amount of a borrower's payment will be applied to the principal (once all interest accrued prior to March 13, 2020, is paid). This would help them pay down the balance more quickly.
How will the suspension period affect the Public Service Loan Forgiveness Program?
Under the Public Service Loan Forgiveness (PSLF) Program, borrowers who work in an eligible public service job and make 120 on-time student loan payments are eligible to have the remaining balance on their federal Direct Loans forgiven. Under the new legislation, the six-month freeze on student loan payments will not affect the 120-month running period for purposes of the PSLF program. In other words, if they were on a qualifying repayment plan prior to the suspension and work full-time for a qualifying employer during the suspension period, each month of the suspension period will still count toward the 120-payment tally, even if the borrower does not make any payments during the six-month period.
Under an income-driven repayment (IDR) plan, will suspended payments count toward IDR forgiveness?
Yes.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.