Student Loan Emergency Relief

April 7, 2020

Fashion isn't cheap, or at least our student loans weren't... Here's a rundown of how the Student Loan Emergency Relief plan works.

 

 

  

Under the CARES Act, payments on federal student loans owned by the U.S. Department of Education are automatically suspended from March 13 through Sept. 30, 2020.  In addition interest shall not accrue while the loan payments are suspended. Auto-debit payments are suspended during the administrative forbearance. Any auto-debit payments processed between March 13, 2020, and Sept. 30, 2020, can be refunded to you.  Servicers have until April 10th to implement these guidelines.

 

The CARES Act only affects:

  • Direct Loans - Generally, if you took out a federal student loan or consolidated your loans on or after July 1, 2010, you have a federal Direct Loan. Most of these loans are serviced through My Fed Loan.  There are four types of Direct Loans:

    • Direct Subsidized Loans

    • Direct Unsubsidized Loans

    • Direct PLUS Loans

    • Direct Consolidation Loans

  • Federal Family Education Loans (FFEL) - a system of private student loans which were subsidized and guaranteed by the United States federal government. The program issued loans from 1965 until it was ended in 2010.  Unfortunately, only loans currently owned by the Federal Government are applicable for forbearance. If you qualify you should have been contacted by your loan servicer already. There are 4 categories of these loans:

    • Stafford

    • Unsubsidized Stafford

    • PLUS

    • Consolidation

Public Service Loan Forgiveness

If you are working towards Public Service Loan Forgiveness these 6 months will count as on-time payments.  This means that for borrowers in an income-driven repayment plan, the suspended payments are considered qualifying payments that can be counted toward forgiveness.

 

Defaulted Loans in Rehabilitation

For defaulted loans that are currently enrolled in a rehabilitation program, these 6 months will count as on-time payments even if the borrower does not make payments.

 

Loans in Collection

Under this act all “involuntary collection” of defaulted Direct Loans and Department-owned FFEL loans will be suspended until September 30, 2020. This explicitly covers non-judicial 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. Unfortunately, “Involuntary collection” isn’t defined anywhere in existing code. Your employer should have already been notified to stop wage garnishments, but sending an email to your HR department will likely move the process along faster.

 

 

Loan Cancellation for Current Students

For borrowers who withdraw from their school as a result of the coronavirus crisis, the Act requires the Secretary to cancel the borrower’s Direct Loan associated with the payment period in which they withdrew. This should happen automatically, however with the magnitude of this Act, some of these might slide under the radar. If you have had to withdraw from school due to Covid-19 and your loan has not been cancelled, reach out to your servicer.

 

What to do if your loans don’t qualify for the CARES Act:

  • Commercially Held FFEL Loans - If your family income has been significantly impacted due to Covid-19, consider applying for an Income Based repayment plan. This can be done via your Lender's Website.

  • Perkins Loans owned by Universities - These loans have the least flexibility for lowering payments. You can apply for deferment or forbearance to postpone repayment for 3 months through your University.

  • Private Loans - If you have private loans, you will need to contact your lender directly to discuss your options. Each lender will have different guidelines at varying levels of flexibility. Any changes to your payment plan will likely increase your final loan amount in some way.

See how your Loan Servicer is addressing Covid-19:

Like with anything involving money, the sooner you contact your lender regarding hardships, the better your chances of getting some sort of aid. Waiting until your loans payment are behind will result in less options. As always, if you have any questions feel free to contact our staff, and we will help in any way possible.