The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides a comprehensive legislative response to the urgent public health and economic needs stemming from the coronavirus crisis. While much of the attention has been devoted to the stimulus provisions, several very important provisions apply to federal student loan borrowers.
Eligible loans
The following CARES Act provisions only apply to:
Direct Loans (defaulted and nondefaulted)
Some Federal Perkins Loans
Some Federal Family Education Loans (defaulted and nondefaulted)
Federal Family Education Loans (FFEL) that were made prior to 2010, including Stafford Loans
Direct Consolidation Loans
PLUS Loans
Some FFEL loans are owned by commercial lenders, and some Perkins Loans are owned by the schools themselves. Those loans, and any other loans not owned by the Department of Education (DOE), are not covered by the CARES Act.
Payment suspension
The CARES Act creates a forbearance period that automatically suspends all payments due on the previously mentioned federal loans from March 13, 2020 through Sept. 30, 2020. This provision applies only to non-defaulted Direct Loans and FFEL loans currently owned by the DOE. The DOE automatically suspends payments for borrowers with auto-debit arrangements. Loan processors’ deadline to implement the suspension was April 10. Any auto-debit payments processed between March 13, 2020, and Sept. 30, 2020, can be refunded by contacting the loan servicer. Continued payments will be counted toward the loan principal, reducing overall interest payments and ultimately paying down the loan faster.
Collection suspension
The CARES Act suspends all involuntary collection of defaulted Direct Loans and Department-owned FFEL loans until Sept. 30, 2020. This explicitly covers nonjudicial wage garnishment, tax offsets and federal benefit offset (e.g., seizure of Social Security benefits). There is also a catch-all provision to cover other types of involuntary collection by the Department of Education.
Interest waiver
The CARES Act prevents interest from accruing while loan payments are suspended. This provision applies only to Direct Loans and to FFEL loans currently owned by the DOE. It is unclear if the interest will be capitalized. Under current rules, specified events (i.e. entering repayment, ending a deferment/forbearance, a change in repayment plan, consolidation) trigger interest capitalization. Before the CARES Act was signed, the DOE said that borrowers who were in a forbearance prior to March 13, 2020, will have interest that accrued during the forbearance period prior to March 13, 2020, capitalized.
Time in suspension counts toward forgiveness or loan rehabilitation
The CARES Act treats monthly suspended loan repayments or involuntary collections as if the borrower made a payment for purposes of qualifying for loan forgiveness or loan rehabilitation programs. For borrowers in an income-driven repayment plan, the suspended payments are considered qualifying payments that can be counted toward forgiveness. Borrowers working toward Public Service Loan Forgiveness will also have time in suspension counted toward their 10 years of qualifying payments. It also means that, for defaulted loans in a rehabilitation program, each month during the collection suspension will count as a month in which an on-time rehabilitation payment was made.
Borrower notification
The CARES Act requires the DOE to notify borrowers within 15 days of when their payments have been suspended and interest waived, or for whom involuntary collection has ceased. The notification must also give borrowers the option to continue making payments. Prior to restarting payments or collections, the CARES Act requires the DOE to give each borrower six separate notices of when the borrower’s payment will resume.
Loan cancellation for current students
For borrowers who withdraw from their school as a result of the coronavirus crisis, the CARES Act requires the DOE to cancel the borrower’s Direct Loan associated with the payment period in which they withdrew.
Next steps
These provisions help far more people than many realize. Nearly 20% of all student loans are held by individuals older than 50 and the fastest growing student loan debt is accruing with individuals 60 and older. Why? Primarily because parents take on their children’s student loan debt. With so many workers currently on furlough or losing their jobs entirely, the student loan relief provisions will be extremely helpful. However, there are many implementation answers the DOE still needs to provide.
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