Coronavirus and student loans: What borrowers should know

The spread of the coronavirus, or COVID-19, has left 10 million Americans unemployed in the last two weeks, escalating concerns about households and how they’ll manage their finances.

While student loan borrowers understood generally that the Department of Education (ED) has taken several steps to help them weather the chaos, many were perplexed when their loan servicer’s website — or even the agency’s — did not show the new actions.

(Graphic: David Foster)

Late Wednesday night, three working days after the stimulus package was passed, the updated ED website stated that the actions were intended to “provide relief to student loan borrowers during the COVID-19 national emergency, federal student loan borrowers are automatically being placed in an administrative forbearance,” which will not be charged interest.

The moves enable 43 million borrowers with $1.5 trillion in outstanding student loans owed to the federal government to “temporarily stop making [their] monthly student loan payment” until September 30. (Borrowers with privately-held loans should consult their servicer.) 

Prior to the update, Yahoo Finance received multiple questions from borrowers expressing confusion regarding the the Public Service Loan Forgiveness (PSLF) program, borrower defense, among other things. 

A reader informed us that the customer service representative told them on March 31 that they still needed to make a payment to meet their PSLF obligations, even after the borrower cited the new guidelines written by the Consumer Financial Protection Bureau. 

Secretary of Education Betsy DeVos listens as U.S. President Donald Trump speaks during a briefing on the coronavirus pandemic in the press briefing room of the White House on March 26, 2020 in Washington, DC. (Photo: Drew Angerer/Getty Images)

What student loan borrowers should know

With the ED website updated, confirming what was enacted by the Trump administration and Congress, here is the latest on student loans amid the coronavirus pandemic:

  • There will be a six month pause on student loan payments, from March 13 to September 30. The interest rate is 0% on the following federal student loans:

  • Some FFEL Program loans which are owned by commercial lenders, and some Perkins Loans owned by the higher education institution that the borrower attended are unfortunately not eligible for the 0% interest rate.

  • Private student loans are not covered by the CARES Act because ED “does not have the legal authority,” the website states.

  • The government has stated that it will “automatically adjust” borrowers’ account to reflect the 0% interest rate. 

    • If you wish to make payments still, “the full amount of your payments will be applied to principal once all the interest that accrued prior to March 13 is paid.”

    • Loan servicers will be halting payments and billing by April 10, according to Politico.

    • All the benefits from the suspension of payment will be retroactive to March 13. So if you’ve already made payments since, you can request for a refund, if you wish to do so.

    • If you don’t want to get refunded, all the interest you’ve paid on your loans since March 13 will go towards paying down your principal balance.

A woman wears a protective face mask as students prepare for Spring Break and an extended period of online classes due to coronavirus at Syracuse University, New York, U.S., March 12, 2020. Picture taken March 12, 2020. (Photo: REUTERS/Maranie Staab)

  • Those who have set up autopay will have that turned off. You can ask them to turn it on, if you wish.

  • If you’re enrolled in an income-driven repayment plan and need to re-certify your income during this period of suspension, you have a six month automatic extension. 

  • If you’re working towards Public Service Loan Forgiveness, you don’t need to pay if you had taken out a Direct Loan and were on a qualifying repayment plan prior to the suspension and were working for a qualified employer during the suspension full-time. 

  • If you’ve defaulted on your student loans, no entity is allowed to seize your tax refunds or Social Security income, or garnish your wages, for six months.

    • If your federal tax refund has already been seized, if it happened on or after March 13 and before September 30, that will be returned to you.

    • If your wages have been garnished between March 13 and September 30 and sent to ED, the department will refund that. 

    • Private debt collection agencies contacted by the federal government are told to “not make collection calls and not accept auto-debit payments” from March 13 to September 30. But you can reach out to them if you want to continue to pay.

When you need to start paying again, the “servicer will contact you, no later than August, to remind you that you will need to start making payments again,” ED advised.

For those looking at the “borrower defense” rule — intended to offer loan forgiveness to those holding federal loans, who had attended a college or a university which had misled them or engage in other misconduct or violation of certain state laws — there was no clear guidance on where that stands.

The House and Senate both have passed legislation that reverses ED Secretary Betsy DeVos’ several of the rule which would make it harder for applicants to seek debt relief.

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami

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