Student loan debt is a substantial burden on many Americans under normal circumstances. The current health crisis facing our country makes it even more difficult to manage. That is why the newest COVID-19 legislation aims to provide some relief from federal student loans and support for students who are struggling financially.
Here are some more helpful questions and answers about how the latest COVID-19 package can provide financial relief to students and those affected by student loans:
What forms of relief are students impacted by COVID-19 eligible for?
Students will be eligible for emergency financial aid grants from their institutions to meet unexpected and urgent needs related to COVID-19, such as expenses related to food, housing, course materials, technology, health care, and child care. Students who are currently participating in the Federal Work Study program can continue to receive work-study payments from their institution if they are unable to work due to workplace closures.
Relief also exists for students who must drop out of school due to COVID-19. Students will have the portion of their student loan taken out for the semester (or equivalent) canceled. Further, students who received a Pell Grant or subsidized student loan will not have those types of financial aid counted toward their lifetime limits.
What relief is provided to federal student loan borrowers?
Borrowers do not need to make payments on student loans held by the federal government (Direct Loans and FFEL Loans held by the U.S. Department of Education) through September 30, 2020. Borrowers with commercially held FFEL loans and Perkins Loans are not eligible, and private student loan borrowers are also not eligible. No interest will accrue on such loans for the same time period. This provides more than 37 million borrowers with relief from the financial pressure of making monthly payments for approximately 6 months.
During this period, borrowers will not be subject to involuntary collections (garnishment of wages, tax refunds, and Social Security benefits) and will not have any negative credit reporting for late payments during this time period. Student borrowers will continue to receive credit toward Public Service Loan Forgiveness, Income-Driven Repayment forgiveness, and loan rehabilitation even though they will not be making payments. If borrowers want to continue making payments during this time to pay down principal and previously accrued interest (since no interest is accruing as of March 13) they are free to do so.
When will payments resume for federal student loan borrowers?
Starting in August, student loan borrowers will receive notices to help inform them that their regular loan payments and interest accrual will resume after September 30, 2020. These notices will help protect borrowers by providing them with a transition period to stay on track as regular loan payments resume and to offer them the option to enroll in other relief options (such as income-driven repayment, which can lower a borrower’s monthly payment).
Does the six-month suspension of payments and waiver of interest apply to borrowers who have federally guaranteed but commercially held loans through the FFEL and Perkins Loan Programs?
No. The suspension only applies to all Direct Loans and FFEL loans held by the Department of Education (which is about 25% of the FFEL portfolio). Approximately 37 million borrowers (or 87% of federal student loan borrowers in repayment) will receive relief under this plan. We will be continuing to fight to extend relief to borrowers of commercially held FFEL loans and Perkins Loans. In the meantime, contact your loan provider for potential options.
For more information, see the Department of Education’s page about Coronavirus and Forbearance Info for Students, Borrowers, and Parents.