CARES Act Update

Apr 3, 2020 9:19:50 PM

Over the past few weeks, changes have been fast moving and there is convergence of what borrowers want to happen and what will actually happen. Three relief measures have been announced since the start of the COVID-19 pandemic by both the White House and the U.S. Department of Education. In that interim of announcements there was a bit of confusion on what information your clients were reading online regarding these benefits and what kind of federal loans are eligible. Additionally, private education loan borrowers are seeking some relief, too.

Federally Backed Student Loans - 6 Months of Relief with CARES Act

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law by the President - $2.2T stimulus package. For federal student loan borrowers, it further extended federal student loan relief to 6 months, via an administrative pause through September 30, 2020. The CARES Act came after two other relief measures were announced. 

On March 25, 2020 Secretary of Education Betsy DeVos announced new measures due to the pandemic: halt wage garnishments, collections, or treasury offsets for those federal student loan borrowers in default. Prior to that, the President promised federal student loan borrowers will automatically have their interest rates set to 0% for 60 days and students having trouble paying their federal student loan payments can request an administrative forbearance from their servicer, both relief measures starting March 13, 2020. 

Secretary DeVos announced March 20, 2020 information executing the President’s promise. The flexibility would last for a period of at least 60 days beginning from March 13, 2020, and might be extended. All servicers have been pushed this guidance and approximately $1.8 Billion is being refunded from activity since March 13. The CARES Act extended this relief. Yet, there is confusion about who is eligible for these borrower benefits and what kind of loans are eligible. Federal Student Aid (FSA) is in the process of updating their website, and servicers are too. Borrowers should monitor their online servicer account to ensure they receive the benefits. The CARES Act states to allow 15 days from the signing of the document for updates.

 

What to watch for:

  • What are federally-held student loans, and how can a loan borrower determine if they have them?
  • If a loan borrower still has a job, and can afford their monthly payments, can they still keep making payments to their loans during the 6-month pause on federally-backed student loans?
  • If a borrower makes loan payments during the 0% interest period, how will they be applied?
  • If a loan borrower is on a path to make 120 qualified payments towards PSLF, and their loans and interest are paused through the CARES Act, will those 6 months count as an eligible payment for PSLF? 
  • If a loan borrower has lost their job, do they still need to contact their servicer or will the 6-month extension be automatic? 
  • If a loan borrower was already approved for an Income-Driven Plan and their payments are automatically paused through the CARES Act, will those paused payments count as eligible payments towards their repayment plan?
  • What about a loan borrower’s non-federally held loans, like Federal Perkins Loans and Federal Family Education Loans (FFEL), and private education loans, is there any relief for those loans?
  • Who does your client contact if their wages have been garnished from their paycheck, after March 13, 2020, because of their loans being in default?

 

What are federally-held student loans, and how can a loan borrower determine if they have them?

Use LoanBuddy to help your client borrower identify if they have a federally-held student loan, since pausing loan payments and interest is only for Federal Direct Loans, and Federal Family Education Loans (FFEL) or Perkins loans. These loans can easily be identified because the U.S. Department of Education is listed as the Servicer when borrowers view their loan history. With this additional clarification we have categorized strategies that may best to support client’s financial status’. (See screenshot from the LoanBuddy “List of Loans” Tab.)

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Borrowers in Good Standing with Federally-Held Student Loans

The CARES Act will automatically place borrowers into a pause, their servicer will do so on their behalf and interest will be charged at 0% through September 30, 2020. Thus, there is no longer a need for borrowers to contact their servicer to request the Administrative Forbearance. Be sure to encourage your clients to monitor their online account with their servicer to ensure their loans are paused, and that they begin repaying again after the pause has ended.

These measures will allow federal student loan borrowers with Direct Loans and federally-held FFEL and Perkins loans in good standing to temporarily stop their payments, and benefit from not accruing any interest.

 

If a loan borrower still has a job, and can afford their monthly payments, can they still keep making payments to their loans during the 6-month pause on federally-backed student loans?

Yes. There is no pre-payment penalty. Loan borrowers are permitted to continue making payments to their loans. And you might want to encourage your clients to take advantage of their payments applying towards their principal balance, especially if they are a borrower enrolled in a Direct Loan Standard, Graduated, Extended or Consolidated repayment plan.

 

If a borrower makes loan payments during the 0% interest period, how will they be applied?

During the period of 0% interest (March 13, 2020, through Sept. 30, 2020), the full amount of your payments will be applied to principal once all the interest that accrued prior to March 13 is paid.

 

If a loan borrower is on a path to make 120 qualified payments towards PSLF, and their loans and interest are paused through the CARES Act, will those 6 months count as an eligible payment for PSLF? 

Yes. One of the benefits of the CARES Act is that even though their interest is set to 0% and no payments are due through September 30, 2020, these payments still count towards their 120-qualified payments for PSLF. However, what to watch for, is if their employment drops below 30 hours, which is the threshold for qualifying, at this point they would not have a qualified payment. Stay tuned for more information on this as the 4th stimulus package is being sorted out. 

 

If a loan borrower has lost their job, do they still need to contact their servicer or will the 6-month extension be automatic? 

It depends on if their loans are in good standing or not. If your loans are in good standing, they will be eligible for the CARES Act benefit to pause their payments through September 30, 2020 with 0% interest, and it will be automatically applied by their servicer. If they are uncertain about their loan status, they can check with their servicer. However, within the LoanBuddy platform the loan status is available within the list of the individual loan details, but you will need the most recent and up to date client loan information, as we are aware servicers are updating their sites to reflect the new relief measures. 

 

If a loan borrower was already approved for an Income-Driven Plan and their payments are automatically paused through the CARES Act, will those paused payments count as eligible payments towards their repayment plan?

Yes. One of the benefits of the CARES Act is that even though your clients interest is set to 0% and no payments are due through September 30, 2020, these payments still count towards eligible payments in their Income-Driven Repayment Plan.

Use the LoanBuddy federal calculator to evaluate how the 6 month administrative pause and 0% interest impacts your client’s repayment decisions, obligations, etc. (screenshot below showcasing the toggles from our LoanBuddy federal calculator).

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What about loan borrower’s non-federally held loans, like Federal Perkins Loans and Federal Family Education Loans (FFEL), and private education loans, is there any relief for those loans?

While the federal relief measures are directed at Direct and federally-held student loans only, you might discover your client’s lender may be willing to offer them a deferment, forbearance or other relief, even if they are not widely publicizing it on their website. Encourage your clients to reach out to their loan holders, whether it be FFELP, Perkins or private education loan providers to seek what assistance they are willing to offer during the COVID-19 pandemic.

 

  • Call private lenders to request a 0% interest rate, especially while in forbearance or deferment.
  • Remember, relief is not guaranteed.

 

Who does your client contact if their wages have been garnished from their paycheck, after March 13, 2020, because of their loans being in default?

If your client is a federal student loan borrower in default and informs you their paycheck has been impacted, and whose wages continue to be garnished after March 13, encourage them to contact their employers’ human resources department for resolution. This will alleviate impacted borrowers to adjust the automatic payroll processing and remove it. 

 

What can I do as an Advisor?

    • First review the LoanBuddy “List of Loans” Tab to properly identify each loan to determine the appropriate action for your client.
    • Use the LoanBuddy federal calculator to evaluate the benefits of the 0% interest option and toggle for the administrative pause. 
    • Share the facts with applicable clients: Coronavirus and Forbearance Info for Students, Borrowers, and Parents
    • Discuss any unusual or more challenging situations in our member Facebook group. 

 

We will continue to keep publishing as additional details come out. 

 

Over the past few weeks, changes have been fast moving and there is convergence of what borrowers want to happen and what will actually happen. Three relief measures have been announced since the start of the COVID-19 pandemic by both the White House and the U.S. Department of Education. In that interim of announcements there was a bit of confusion on what information your clients were reading online regarding these benefits and what kind of federal loans are eligible. Additionally, private education loan borrowers are seeking some relief, too.