The Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act) provides assistance to certain student loan borrowers. Section 3513 CARES Act. Although temporary, it offers help for those borrowers whose student loans qualify.
This relief applies only to federal student loans, not to private student loans, yet not all federal student loans are included. Direct Loans, those received directly from the federal government’s Department of Education, are covered. Federal Family Education Loans (FFELs) are covered if they’re currently owned by the federal Department of Education, whereas FFEL loans held by commercial lenders and campus-based Perkins loans are not covered. Since these non-covered loans comprise only about 12 percent of federal student loans, most federal student loans are covered by the CARES Act provisions.
The CARES Act does the following:
- Suspends all loan payments through September 30, 2020.
- Waives interest during this suspension period.
- For credit reporting purposes, the lender must treat each suspended payment as if the borrower made the payment.
- Student loan creditors must suspend involuntary collection during the suspension period.
- The payment suspension time counts for purposes of loan forgiveness and loan rehabilitation.
- Payment Suspension Section 3513(a), CARES Act.
The Department of Education has specified that the “administrative forbearance will last from March 13, 2020, through September 30, 2020.” An administrative forbearance is a temporary suspension of payments. Payments, includes auto-debit payments, made during the same March 13 through September 30, 2020, should be refunded by the student loan servicer that received it.
- Interest Waiver Section 3513(b), CARES Act.
No interest will accrue during the period from March 13 through September 30, 2020.
- Credit Reporting Section 3513(d), CARES Act.
The suspended payments should appear as payments actually made payments on a borrower’s credit report.
- Collection Freeze Section 3513(e), CARES Act.
Three specific types of collection are expressly included: wage garnishment, tax refund offset, and administrative offset by “a reduction of any other Federal benefit payment.” Although the Act also adds “any other involuntary collection activity.” During the period from March 13 through September 30, no collection activity should occur on any applicable student loans.
- Non-Payments Count Section 3513(c), CARES Act.
For borrowers in an Income-Driven Repayment (IDR) plan, these months of non-payment count towards loan forgiveness as if they had made the payments. The same is true for monthly credit towards Public Service Loan Forgiveness (PSLF). Also, for borrowers trying to “rehabilitate” their defaulted student loans, the suspended payments count as payments made for a rehabilitative purpose.
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