Category: Student loans

Summary of President Trump’s August 8 Economic Executive Orders

On August 8, 2020 President Trump issued four Executive Orders (technically three memorandums and one order), that offer possible additional eviction and foreclosure assistance, a payroll tax holiday, student loan payment and interest deferral, and unemployment pay.

There is a question of the legality, as federal spending is a power reserved for Congress, and they could be stopped by a court order, but so far Democrats have not proposed that, as negotiations for another stimulus package have stalled, and they are unlikely to stop the additional unemployment amount given under the orders.  

This article will be updated as more information becomes available.

Memorandum: Student Loan Payment Deferral

The CARES Act deferred payments and interest on Federal Direct student loans until September 30, 2020. This memorandum offers further deferral until December 31, 2020. The memorandum specifies that those who want to can continue to make payments.

We don’t know yet if this continued deferral will be automatic (it most likely will be), and whether the skipped payments will count towards forgiveness programs, such as Public Service Loan Forgiveness (PSLF).

Memorandum: Unemployment Pay

Under the CARES Act those who are unemployed received their state benefit plus $600 a week, fully funded by the federal government. However, that $600 extra per week ended in late July. This memorandum provides $400 extra per week, ending no later than December 27, 2020.

Of that $400 extra, states have to pay $100 of it.

What we don’t know is what will happen if the states don’t have the funds, as many states have already said they don’t. Will the unemployed get an extra $300? We also don’t know when the extra $400 per week will start.

Memorandum: Payroll Tax Deferral

This memorandum defers payment of payroll tax from September 1 through December 31, 2020. This only applies to those with bi-weekly pay less than $4,000, calculated on a pre-tax bases (or $104,000).

This is a deferral only, and the tax will be due in the future, most likely with April 2021 taxes.

The major criticisms of this memorandum is that is does not help the unemployed, and that it will have to be paid back. It is also extremely unpopular among both Republicans and Democrats. If Congress decides to extend it, they will have to decide how much to reduce it and how long it will last.

If the deferral is the full employee portion of the payroll tax (7.65%) someone earning $40,000 year will get approximately $255 extra on their monthly paycheck, while someone earning $100,000 will get approximately $637 extra per month. Again, though, this is simply a delayed tax, not a cancellation. My concern is that people will spend that money and not be able to pay it back when it becomes due.

Chances are, if Congress chooses to include this in their bill, that they will cancel the collection of the tax, but nothing is sure yet.

President Trump has tied this directly to his re-election, stating that if he is re-elected he will make the deferral permanent and that it will not have to be paid back. Presidents, however, do not have this authority, so it would take an act of Congress to enact this.

If this is upheld, we don’t know whether that $104,000 is for single or married borrowers, and there is no word on whether or not there will be a deferral of the employer portion (it is unlikely that there would be a deferral of that portion).

Executive Order: Assistance to Renters and Homeowners

The CARES Act moratorium on certain evictions and foreclosures expired on July 31, which could start a wave of people losing their homes or rental. With unemployment still high the concern is that a loss of housing will spread the Coronavirus faster if people end up in homeless shelters or in a crowded multi-family home.

This Executive Order, however, does not really stop either evictions or foreclosures. It simply directs the Secretary of the Treasury and the Secretary of Housing and Urban Development to identify Federal funds to provide temporary financial assistance to renters and homeowners who are struggling to meet their monthly or mortgage obligations.

Basically this order says these groups need to look into it and try to figure out how to help. Measures mentioned in the order may include, “encouraging and providing assistance to public housing authorities, affordable housing owners, landlords, and recipients of Federal grant funds in minimizing evictions and foreclosures.”

We don’t know what will come of this – it could be a full moratorium, or a partial one. If there is direct money we don’t know if funds may be provided directly to landlords or to tenants to pay their landlords.

CARES Act: Changes to Student Loans

NOTE: This article will be updated as new guidelines or laws are passed about economic support during the Coronavirus pandemic.

NOTE: Updated 4/9/2020 due to the passage of the CARES Act and updated guidelines from the U.S. Department of Education.

There have been some significant developments to the federal student loan program during the pandemic and as a result of the CARES Act, which was signed into law on 3/27/2020. I will continue to update this post as new information is announced.

The CARES Act temporarily suspends payments on the following student loans that are owned by the Department of Education (ED):

  • Defaulted and non-defaulted Direct loans
  • Defaulted and non-defaulted FFEL loans
  • Federal Perkins loans

The automatic suspension does NOT apply to any other student loans, including:

  • FFEL loans held by commercial lenders
  • Perkins loans held by a school
  • Private student loans

The payment suspension lasts from March 13, 2020 until September 30, 2020. In addition to the payment suspension, all covered loans have their interest-rate set to 0% during that same time period.

Questions and Answers about the Payment and Interest Suspension

How can I find out if my loan is owned by ED?

To find out who owns your loans check the website of your servicer or go to StudentAid.gov/login. Either one will list the current owner – if it lists ED or Dept of Education the loan is covered under the payment suspension. In addition, most servicers got their websites updated by early April to reflect a new payment of $0. If you are unsure whether or not your loans qualify, check with your servicer.

Is interest suspended for students in school now as well?

If you have an unsubsidized Direct loan interest will not accrue from March 13 until September 30, 2020.

My loans are in default and my wages are being garnished or my federal tax refunds have been seized. Will my loans qualify for the payment and interest suspension?

Yes, involuntary collection is suspended from March 13 until September 30, 2020 as well. In addition, you can request a refund of any amount that was garnished or taken from your tax refund after March 13. The same is true of any Social Security or Disability payments withheld after March 13. You can check with your servicer or call the ED’s Default Resolution Group at 1-800-621-3115.

Can I continue to make payments during the payment suspension?

Yes, borrowers can make voluntary principal payments during the payment suspension. However, all accrued interest needs to be paid off before payments reduce the principal balance.

I have heard that suspended payments count as payments for forgiveness programs. Is that true and which forgiveness programs are included?

Suspended payments are considered payments for loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). In addition, payments count towards forgiveness on income-driven repayment plans (IDR).

My loans are in default and I am in the process of rehabilitating them. Should I continue to make payments during the payment suspension?

ED has recently confirmed that the suspended payments will count as on-time payments during the payment suspension period, so there is no need to continue making payments.

Rates on private student loans are low – should I refinance my loans?

Refinancing loans only makes sense if borrowers have a high federal rate and they know for sure they will no be using any of the federal benefits, such as forgiveness, deferment, or forbearance. With 0% interest and no payments for now, though, I would just focus on paying the principal balance down.

My loans don’t qualify for the automatic suspension. Is there anything I can do?

You can always check with your loan servicer and see if they have a payment suspension option for the pandemic. Most likely any payment suspension will not include an interest suspension.

Can I consolidate my FFEL loans and take advantage of the payment and interest suspension?

You can, but consolidating can take 45-60 days, and any accrued interest capitalizes, which means it is added to the principal balance. In addition, it can have an effect on loan forgiveness as well, so you want to make sure you do not consolidate them with Direct loans that are in a forgiveness plan.

 

If you want help navigating these changes and setting up a student loan plan visit my website https://studentloanplanning.com/.