Section 3513, one of the many provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), addresses the handling of most federal student loans.
The CARES Act suspends all loan payments through September 30, 2020, for certain types of student loans made or held by the United States Department of Education:
- Federal Direct Stafford Loans,
- Federal Direct Parent PLUS Loans,
- Federal Direct Grad PLUS Loans, and
- Federal Direct Consolidation Loans.
The payment suspension does not apply to:
- Private student loans,
- Perkins loans held by the institution that a student attended, and
- Federal Family Education Loan Program loans owned by commercial lenders.
Under the CARES Act, for any loans that are part of the Public Service Loan Forgiveness or a 20- or 25-year income-driven loan repayment forgiveness plan, the suspended payments between March 2020 and September 30, 2020, will count towards completion of the required payments (i.e., a 10-year PSLF loan will still end in 10 years, it will not be extended to 10 years and 6 months). For purposes of credit reporting, the CARES Act states all suspended payments will be treated as if they were made. In addition, all wage garnishments, garnishments of tax refunds, and reductions in federal benefits are also suspended through September 30, 2020.
For those student loans subject to the CARES Act, the payment suspension is automatic through September 30, 2020. This is the specific date set forth in the statute. Interest will not accrue on covered student loans during this time period. According to a March 31, 2020, press release, the Department of Education already had set interest rates for covered student loans to 0 percent, suspended payments, and ceased wage garnishments. These items were automatically applied to accounts and borrowers do not need to take any affirmative action to obtain this relief.
For private student loans, most servicers are offering temporary relief to borrowers. Relief options vary by servicer, and it is incumbent upon the borrower to affirmatively reach out to the servicer to discuss relief options such as forbearance or deferment. Some servicers have also placed a moratorium on the filing of lawsuits against defaulted borrowers at this time.
In addition to the suspension of student loan payments, the Department of Education has engaged in various other actions relating to education pursuant to directives in the CARES Act. In early April, the Department of Education disbursed $6 billion to colleges and universities for those institutions to provide cash grants to students relating to their education and the disruption of their education that was caused by the COVID-19 outbreak. These grants are to be used for expenses incurred by the students relating to the outbreak. Each educational institution has the discretion to determine which students will receive grants. In addition, the Department of Education provided $3 billion in funding to state governments to support the continuing education of all students. The state governors are responsible for determining how to best use the funding to meet student needs in their respective states for education at all levels and in both the public and private sectors (i.e., charter schools, private schools, and technical schools).
If you have any questions, please contact our COVID-19 Task Force