As we discussed in a prior LawFlash, US President Donald Trump signed four executive actions that purportedly extend various aid measures for individuals impacted by the coronavirus (COVID-19) pandemic on August 8. One of these actions related to student loan payment relief.
In a presidential memorandum, the president ordered the US Department of Education (DOE) secretary to continue the suspension of loan payments and 0% interest rate for federal student loan borrowers provided for by the Coronavirus Aid, Relief, and Economic Security (CARES) Act until December 31, 2020. The memorandum also stated that it is “appropriate to extend this policy until such time that the economy has stabilized, schools have re-opened, and the crisis brought on by the COVID-19 pandemic has subsided.”
On August 21, US Secretary of Education Betsy DeVos acted on President Trump’s memorandum and directed Federal Student Aid (FSA) to extend the student loan relief to borrowers, originally scheduled to expire on September 30, 2020, through December 31, 2020. The interest rate on all federally held student loans will be set to 0% through the end of the calendar year. Borrowers will continue to have the option to make payments if they so choose.
During this extended period for the payment suspension, collections on defaulted, federally held loans are halted, and any borrower with defaulted federally held loans whose employer continues to garnish their wages will receive a refund of those garnishments. Nonpayments by borrowers working full-time for qualifying employers (such as government and not-for-profit organizations) will count toward the 120 payments required by the Public Service Loan Forgiveness program and as payments that are required to receive forgiveness under an income-driven repayment plan.
Per DOE’s announcement, FSA’s servicers are working to make these changes, and borrowers can expect to see the extension reflected in their accounts over the next several weeks.
The payment relief is less expansive than what is found in the HEROES Act, passed by the US House of Representatives on May 15, which would expand the pause on federal student loan repayment through September 2021 and cancel up to $10,000 for some federal and private loan holders.
A fourth stimulus package may still expand student loan payment relief; however, negotiations surrounding another round of stimuli are ongoing. The US Senate recently released a proposal, a so-called “skinny” COVID-19 relief package that did not contain any student loan payment relief.