Immediately after the passage of the CARES law this spring, more than 35 million people with federal student loans received a note from their agent payments have been suspended and their interest rate had been set at 0% until the end of September. Over the weekend, President Donald Trump signed a memorandum extend this reprieve until the end of the year.
But if you’re one of those 35 million, don’t count on it just yet. It is not clear if the extension will be automatic for everyone whose loans are currently on pause or if you will have to prove economic hardship in the future. It is also unclear whether the president has the power to unilaterally defer payments and waive interest on student loans.
“We have a lot of unanswered questions on one, if it’s legal, and two, if it goes into effect, how will it be different from the payment policy and the interest relief?” said Mark Kantrowitz, editor and vice president of research at Save for college.
Even if no one brings a legal challenge, the wording of Trump’s memorandum “is not very clear,” said Betsy Mayotte, president of Trump. The Institute of Student Loan Counselors. “We think we know what this means, but we are awaiting advice from the Department of Education.”
Under the CARES Act, all people with federal student loans held by the federal government are entitled to automatic and temporary relief without having to prove any kind of economic hardship. On top of that, while payments are suspended, those working on civil service loan forgiveness or loan rehabilitation are granted credit as if they are making payments, and collection efforts have been suspended for defaulting borrowers.
Whether Trump’s memorandum expands all of these provisions is an open question.
“It’s really up to the Ministry of Education to interpret it as it thinks. It’s certainly possible that they’re just saying, you know what, we’re going to treat it like the CARES Act, ”Mayotte said – which would mean automatically extending relief to anyone with a federal loan held by the federal government – “Or they could go the other way and say there’s some language here that makes us feel like maybe not everyone should be qualified for this.”
The Education Department has yet to release guidelines on what it plans to do – that will likely happen in the coming weeks. There’s also still a possibility that Congress could break out of its current impasse and pass yet another coronavirus relief bill that includes an extension of the current suspension of student loan payment and interest waiver.
This is what happened in March. Trump announced on March 13 that he was suspend all interest on federal student loans for at least 60 days – two weeks later, Congress passed the CARES law, which codified this into law and “eliminated any possible question about the legality of it,” Kantrowitz said.
Not all student loan holders have benefited from the temporary relief provided by the CARES Act. Almost 20% of federal loans do not qualify for the current payment suspension and interest relief – namely Perkins loans and most Federal Family Education or FFEL loans – nor are private loans. . And while there are still options for borrowers with these types of loans, like income-based or forbearance repayment plans, interest will continue to accrue even if they don’t make payments.
For those whose loans have been on hold since March, the fact that they haven’t accrued interest has been huge, Mayotte said.
“I’ve been in this industry since the earth cooled, I’ve been through my share of disasters – September 11, Katrina – and this [interest] the waiver was unprecedented, ”she said. “In the past, we have relied heavily on these disaster tolerances which, aside from the fact that the borrower’s credit was not harmed because they didn’t pay, it didn’t. was a great help as their loans ended up being bigger than they were at the beginning. “
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