Student Loan Changes in the CARES Act
The recent coronavirus relief law includes help for some student loan borrowers—suspending payments, interest, collections, credit reporting.
The 880-page Coronavirus Aid, Relief, and Economic Security Act (“CARES”) has 4 pages of help for certain student loan borrowers. Section 3513 of CARES. It provides meaningful albeit temporary help, for those who qualify by having the right kind of student loan.
The Kinds of Student Loans Covered
First, the relief applies only to federal student loans, not to private student loans. The private loan portion of student loans has been growing but still only consists of about 8% of student loans. Nevertheless, private student loans total about $125 billion. The CARES Act does not help if you owe any of this.
Second, not all federal student loans are included. Direct Loans—those made directly by the federal government’s Department of Education—are covered. Federal Family Education Loans—FFELs—are covered if they’re currently owned by the federal Department of Education. FFEL loans held by commercial lenders and campus-based Perkins loans are not covered. These non-covered loans amount to only about 12 percent of federal student loan dollars, so most federal student loans are covered.
The Key Benefits
For the applicable federal student loans, CARES accomplishes the following:
Suspends all loan payments through September 30, 2020.
Waives interest during this suspension period.
For credit reporting purposes, the lender must treat each suspended payment as if the borrower actually paid the payment.
Student loan creditors must suspend involuntary collection during the suspension period.
The payment suspension time counts for purpose of loan forgiveness and loan rehabilitation.
1. Payment Suspension
The new law suspends “all payments due for [applicable student] loans… through September 30, 2020.” Section 3513(a), CARES Act. The law did not specify when this non-payment period started. But since then the U.S. Department of Education has specified that the “administrative forbearance will last from March 13, 2020 through September 30, 2020.” (Administrative forbearance means a “temporary suspension of payments.”) Coronavirus and Forbearance Info for Students, Borrowers, and Parents.
If you’ve already made a payment during the same March 13 through September 30, 2020, your student loan servicer should refund it to you. This includes auto-debit payments, which are supposed to stop automatically during this same period. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.
2. Interest Waiver
“[I]nterest shall not accrue on a[n applicable student] loan… for which payment was suspended for the period of the suspension.” Section 3513(b), CARES Act. So no interest will accrue during the March 13 through September 30, 2020 period. This should happen automatically, without requiring any action by you. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.
3. Credit Reporting
“During [this same] period… , for the purpose of reporting information about the loan to a consumer reporting agency, any payment that has been suspended is treated as if it were a regularly scheduled payment made by a borrower.” Section 3513(d), CARES Act. The suspended payments should show as actually made payments on your credit reports.
4. Collection Freeze
“During the [same ]period [the loan servicers] shall suspend all involuntary collection related to the loan.” Section 3513(e), CARES Act. The law lists three specific types of collection that are explicitly included: wage garnishment, tax refund offset, and administrative offset by “a reduction of any other Federal benefit payment.” But it also broadly adds “any other involuntary collection activity.” Section 3513(e)(1-4), CARES Act. So during the March 13 through September 30 period, no collection activity of any kind should happen on the applicable student loans.
5. Non-Payments Count
“[E]ach month for which a loan payment was suspended [counts] as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or loan rehabilitation program… for which the borrower would have otherwise qualified. Section 3513(c), CARES Act.
This means that if you are now in an Income-Driven Repayment (IDR) plan, these months of non-payment count towards loan forgiveness as if you had made the payments. The same is true for monthly credit towards Public Service Loan Forgiveness (PSLF). Also, if you are working on “rehabilitating” your defaulted student loan, the suspended payments count as payments made for that purpose. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.
Note: Please see our last several blog posts for information on other relevant aspects of the CARES Act. Contact your local bankruptcy lawyer to apply these to your own unique circumstances.