Your student loan payments are paused through December 31, 2020—unless you have these types of student loans.
Here’s what you need to know.
After Congress left Washington without a stimulus bill, President Donald Trump issued an executive memorandum to extend student loan relief through December 31, 2020. As a result, Secretary of Education Betsy DeVos implemented the following yesterday:
This student loan relief, which closely mirrors the student loan relief in the Cares Act (the $2.2 trillion stimulus bill that Congress passed in March), extends the Cares Act from September 30, 2020 through December 31, 2020. However, this relief does not apply to private student loans. Before DeVos’ actions, it was unclear whether non-payments would still count for student loan forgiveness and if student loan debt collection also would be halted. While many borrowers are breathing a sigh of relief, there are millions of student borrowers who won’t receive student loan relief on all their student loans.
Will you get student loan relief?
The Cares Act does not apply to all federal student loans. Why? According to the Cares Act, “federal student loans” only includes federal student loans that are owned by the U.S. Department of Education. This includes Direct Loans such as Stafford Loans, for example, but excludes other type of federal student loans that are not owned by the federal government such as FFELP loans and Perkins loans. FFELP loans are federal student loans that were issued to borrowers before 2010 by private banks and financial institutions, and are therefore not owned by the federal government. Perkins loans are a type of student loan that are typically owned by colleges and universities. If you hold either of these types of student loans, you would not have student loan relief for these loans and payments would be due in the normal course. To be clear, Congress, not DeVos, drafted the Cares Act and decided which federal student loans would be included. Since the federal government does not own these types of student loans, they are effectively similar to private student loans in that the federal government cannot unilaterally allow borrowers to pause payments or change interest rates.
Proposal to include FFELP Loans for student loan relief
There are two legislative proposals to afford FFELP and Perkins borrowers the same student loan relief enjoyed by Direct student loan borrowers:
- The Equity in Student Loan Relief Act; and
- The Covid-19 Perkins Loan Relief Act
The Equity in Student Loan Relief Act, if passed, would work like this:
- the U.S. Department of Education would enter into agreements with the owners of the FFELP Loans.
- The Education Department would pay any interest payments during this period and FFELP loans would become paused.
- All involuntary student loan debt collection also would cease during this period.
- Non-payment of FFELP Loans would “count” toward student loan forgiveness programs.
Expert Tip: If you have FFELP loans and you plan to pursue public service loan forgiveness, you must consolidate your FFELP loans into a Direct Consolidation Loan before any of the required 120 monthly payments count for student loan forgiveness.
Proposal to include Perkins Loans for student loan relief
Rep. Elise Stefanik (R-NY), who introduced The Equity in Student Loan Relief Act, also introduced the The Covid-19 Perkins Loan Relief Act in the U.S. House of Representatives. The Covid-19 Perkins Loan Relief Act would allow nearly 2 million student loan borrowers with Perkins loans to have student loan relief that currently is unavailable.
“COVID-19 presented significant challenges and uncertainty…with student loan payments,” Stefanik said when she introduced the legislation. “This bipartisan legislation closes a gap in the CARES Act and allows those with Perkins loans to defer payments…as we recover from the COVID-19 crisis.”
The bill, if passed, would work like this:
- the U.S. Department of Education would enter into agreements with colleges and universities that owns the Perkins loans.
- The Education Department would pay any interest payments during this period and payments on Perkins loans would be paused.
- All involuntary student loan debt collection of Perkins loans also would stop during this period.
- Non-payment of Perkins loans would “count” toward student loan forgiveness programs.
Congress has not passed either legislative proposal, which means that borrowers with FFELP loans and Perkins loans do not benefit from student loan relief. There are also no immediate plans to include these student loans in any stimulus package or executive action, leaving millions of borrowers frustrated.
How to pay off student loans
Whether you have federal student loans (including FFELP and Perkins loans) or private student loans, you need a student loan game plan—even if you receive student loan relief. Remember, any student loan relief through December 31, 2020 is temporary, and your balance and regular interest rate will still be there on January 1, 2021. What’s the best way to pay off student loans? Start with these four options, all of which have no fees: