On Saturday, August 8th, President Trump signed a presidential memorandum directing the Secretary of Education to extend a payment suspension and stop interest accrual for all student loans held by the Department of Education (ED) until December 31, 2020. The presidential memorandum extends some of the relief provided to borrowers under the CARES Act that would otherwise expire on September 30, 2020.
Borrowers counting down to the expiration of the CARES Act student loan provisions breathed a sigh of relief once the memorandum was signed. Although the presidential memorandum created many questions when it was signed, ED issued a press release on August 21 answering many of those questions. Those updates are below. While relief is a much needed temporary reprieve for many borrowers, the relief is temporary and falls short of what borrowers will need in the long term to recover from the financial instability caused by the Coronavirus crisis.
This blog post explores what we do not yet know regarding what relief will be available after the CARES Act provisions expire on September 30, 2020. We hope to get more answers to the questions below (and will update this blog post) as we get closer to the expiration of relief under the CARES Act.
1. Will ED continue the CARES Act suspension of involuntary debt collection for borrowers in default? The presidential memorandum is silent as to whether ED will restart repayment for defaulted borrowers. In fact, the deferment and interest provision of the Higher Education Act (HEA) that the presidential memorandum cites, 20 USC § 1087e(f)(2)(d), is unavailable for loans that are in default. This omission is deeply concerning. When borrowers default on federal student loans, ED can garnish wages, seize Social Security benefits, and seize tax refunds (including Earned Income Tax Credits). Under the CARES Act, Congress instructed ED to stop all collections on defaulted borrowers. However, it is unclear whether this critical relief will continue after September 30, 2020. We have more information regarding what to do if your loans are in default on our website.
8/21/20 UPDATE: ED clarified that it will continue to suspend collections on all federally held loans until December 31, 2020.
2. Will ED extend relief to commercially-held Federal Family Education Loans (FFEL) and school-held Perkins Loans? Both the CARES Act and the presidential memorandum withhold essential relief from millions of federal loan borrowers whose loans are not held by ED. Many of these borrowers have remained in repayment or have only received a portion of the relief that borrowers with ED-held loans have received. ED should also intervene on behalf of these borrowers and should act immediately to do so.
8/21/20 UPDATE: ED clarified that the relief will only extend to ED-held loans. Congress must act to help borrowers who were left out of CARES Act relief and continue to balance their student loans with the hardship imposed by the pandemic.
3. What does the presidential memorandum’s use of economic hardship deferments under the Higher Education Act mean for borrowers who have already exhausted that relief or who want to use that type of deferment in the future? The presidential memorandum directs the Secretary to extend the payment suspension and stop interest accrual via the economic hardship deferment authority provided by the HEA, 20 U.S.C. § 1087e(f)(2)(d). However, under that section of the HEA, the Secretary can only defer loan payments and interest accrual for three years. In the past, borrowers have relied on this provision when they have faced periods of extended unemployment or other economic hardship. It is unclear whether this deferment period will be extended to borrowers who have already exhausted this relief or whether time spent in the deferment during this emergency will count toward that three-year limit.
4. Will the time during the presidential memorandum’s relief period count toward the requisite monthly payments for borrowers seeking Public Service Loan Forgiveness (PSLF)? The CARES Act specified that each month that passed during the relief period would count as a payment toward any loan forgiveness program for which the borrower would have otherwise qualified. Such plans include both income-driven repayment forgiveness and Public Service Loan Forgiveness. However, the presidential memorandum directs the Secretary to use her economic hardship deferment authority to extend the payment suspension. Under the PSLF program, borrowers must make 120 monthly payments before they can request that ED discharge their debt. While the HEA clarifies that economic hardship deferments count toward the repayment clock for income-driven repayment forgiveness, it is unclear whether the time spent in the payment suspension under the presidential memorandum will count towards PSLF.
8/21/20 UPDATE: ED has clarified that it will count the time period during the payment suspension under the presidential memorandum towards the 120 payments required by PSLF.
5. What authority will the Secretary use to stop the accrual of interest for PLUS loan borrowers and others? The presidential memorandum directs the Secretary to suspend payments and stop the accrual of interest for all ED-held student loans. However,the provision of the HEA that the presidential memorandum cites, 20 USC § 1087e(f), only allows for an interest suspension for Federal Direct Stafford Loan and some Direct Consolidation loans. It directs the Secretary to capitalize the interest that accrues during that type of deferral for PLUS, unsubsidized Stafford, and some Direct Consolidation loans. We do not know what authority the Secretary will use to stop interest from accruing on these types of loans.
6. How will ED determine which borrowers “wish to continue making student loan payments”? Will this relief be an opt-in or opt-out provision? The presidential memorandum states that “[a]ll persons who wish to continue making student loan payments shall be allowed to do so,” but provides no guidance for the Secretary regarding how to distinguish which borrowers wish to continue making payments from those who do not. We do not know whether the Secretary will automatically continue suspending all borrowers’ payments pursuant to the presidential memorandum, or whether the Secretary will put all borrowers back into repayment and require that they request relief. Confusion around when a borrower is in repayment will cause needless headaches and distress for borrowers if it is not executed smoothly.
8/21/20 UPDATE: ED has clarified this relief will be automatic for all borrowers, but borrowers can still make payments during the payment suspension.
While many questions remain regarding how ED will implement it, the presidential memorandum represents an important first step towards delivering the relief borrowers deserve. It is encouraging that the urgency of providing student loan relief is so clearly a bipartisan issue during this pandemic. Congress, the President, or the Department of Education must take additional steps to ensure that commercially-held FFEL and school-held Perkins Loans are included in such relief and to ensure that ED does not seize the money that defaulted borrowers need to put food on the table, keep their homes, and pay for medications for themselves and their families.
Further, until Congress, the President, or the Department of Education acts to cancel student loan debt, payment deferrals and interest suspensions will only delay the hardship borrowers will face when they re-enter repayment on their student loans amidst the aftermath of the coronavirus crisis. When Wall Street faced disaster during the Great Recession, Congress intervened to bail them out. Under the CARES Act, Congress reduced taxes levied on the wealthiest Americans. Regular Americans deserve the same life raft Congress has extended to corporations and the wealthy. To begin building that life raft and ensure Americans can recover alongside the national economy, our government should cancel all borrowers’ student loan debts.