by Ryan H. Law
Student loans have been a topic of many of the COVID-19 relief bills and Executive orders since March of 2020. Following is a brief history of the changes:
- March 27, 2020: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law, providing for temporary relief measures on ED-owned federal student loans including suspension of loan payments, stopping collection on defaulted loans, and a 0% interest rate. The original relief was set through September 30, 2020.
- August 8, 2020: President Trump signed an education memorandum that extends COVID-19 emergency relief measures through December 31, 2020.
- December 4, 2020: Education Secretary Betsy DeVos extended COVID-19 emergency relief measures through January 31, 2021.
- January 20, 2021: President Biden extended COVID-19 emergency relief measures through September 30, 2021.
- March 30, 2021: The COVID-19 emergency relief measures were expanded to federal student loans made through the Federal Family Education Loan (FFEL) Program that are in default.
- August 6, 2021: The Biden Administration extends COVID-19 emergency relief measures until January 31, 2022. The administration stated that this would be the “final extension.”
The COVID-19 emergency relief measures include a payment moratorium, 0% interest, and stopping collection of defaulted loans. However, only some loans qualify for the emergency relief measures:
|Loans that qualify for COVID-19 relief||Loans that do not qualify|
|Direct Loans (defaulted and nondefaulted)||Nondefaulted FFEL Program loans not owned by ED|
|FFEL Program loans owned by ED (defaulted and nondefaulted)||Federal Perkins Loans not owned by ED (defaulted and nondefaulted)|
|Defaulted FFEL Program loans not owned by EDFederal Perkins Loans owned by ED (defaulted and nondefaulted)||Private student loans|
Each of the three main relief measures, including the payment suspension, 0% interest rate, and stopping collection on defaulted loans will be described below.
Under current law the payment suspension lasts from March 27, 2020 through January 31, 2022. During this period all payments (on qualifying loans) are stopped. This includes loans that are in repayment, in the grace period, in forbearance or deferment, or in default. This payment suspension is considered an “Administrative Forbearance.”
Borrowers do not need to opt-in to this payment suspension, but they can opt-out and continue making payments if they choose to. If they choose to make payments, payments will be allocated to accrued interest and fees first, then to the principal balance.
Borrowers must receive a billing statement or other notification at least 21 days before their payments begin. Loan servicers will be sending these out in January of 2022.
How the Payment Suspension Affects Repayment Plans
Borrowers who are repaying their loans through the Standard, Extended, or Graduated plans just have a pause on their repayment schedule. If a borrower had 47 payments left when the payment suspension began they will still have 47 payments to go after payment restart.
Borrowers who are paying on an Income-Driven Repayment (IDR) plan make no payments, but the suspended payments count towards IDR forgiveness. For example, if a borrower was on the PAYE plan when the payment suspension began they will have 22 credits towards their 240 payments (20 years) before forgiveness of the remaining balance is forgiven.
Borrowers on an IDR plan have to submit an annual recertification letter that determines their payment for the next year. All recertifications have been pushed out until after January 31, 2022. Loan servicers will contact borrowers with details on their new certification date.
Borrowers who are working towards Public Service Loan Forgiveness (PSLF) also get credit towards their 120 payments during the payment suspension. However, they must continue to meet all the requirements of PSLF, including working full-time for a qualifying employer. The Department of Education is encouraging all borrowers who are working towards PSLF to file a PSLF certification form shortly after payments restart (February 2022).
Qualifying loans will accrue no interest during the COVID-19 emergency relief measures. Similar to the payment suspension, 0% interest applies to loans that are in repayment, in the grace period, in forbearance or deferment, or in default. For most borrowers this means that if they entered the payment suspension with $33,450 in student loans, their balance will still be $33,450 when they enter repayment. The only exception to this is borrowers who have accrued interest (i.e from a prior forbearance that ended during the payment suspension). The interest that accrued prior to March 27, 2020 will capitalize when they enter repayment.
Stopping Collection on Defaulted Loans
Borrowers who default on their student loans face steep penalties and tough collection efforts, including having tax refunds and Social Security benefits withheld and wages being garnished.
As part of the COVID-19 emergency relief measures all collection of defaulted loans stops. Any borrower who had collection on a defaulted loan after March 12, 2020 can request a refund.
Borrowers can get out of default through consolidation or rehabilitation. To rehabilitate a loan a borrower has to set up a rehabilitation with their servicer and make nine out of ten payments on-time. All nine of those “payments” can be made during the COVID-19 emergency relief measures, which means a borrower can get out of default while making no payments and accruing no interest.
How Does a Borrower Find Out if They Qualify for COVID-19 Emergency Relief Measures?
If a borrower qualifies for COVID-19 emergency relief measures, payments automatically stopped in late March 2020. A borrower can also see which type of loans they have with their servicer or at https://studentaid.gov/. To access the loans borrowers need to:
- Click on Dashboard
- Select “view details”
- Scroll down to “Loan Breakdown”
- Look for a servicer name that starts with “DEPT OF ED”
What Options are Available if a Borrower does not have a Qualifying Loan?
Unfortunately the COVID-19 emergency relief measures only apply to specific loans. If a borrower’s FFEL loans are held by a commercial lender (and they are not in default) or if their Perkins loans are held by the school or they have private student loans, they are still in repayment status and interest is still accruing. However, some borrowers in these circumstances have found some relief by calling their servicer. While most are still accruing interest, some servicers have agreed to stop payments for a period of time for borrowers that request it.
For more information on COVID-19 emergency relief measures and how it applies to individual borrowers, borrowers should contact their loan servicer. They can also get more information online at:
- Federal Student Aid Coronavirus Info for Students, Borrowers, and Parents
- CFPB Information for student loan borrowers