How would you like to delay your student loan payments for three years?
Here’s what you need to know.
Delay Student Loan Payments
Sen. Mitt Romney (R-UT) has proposed new legislation to delay federal student loan payments for new college graduates for up to three years. The COVID-19 Graduate Relief Act would apply to anyone who graduates college from January 1, 2020 to December 31, 2020. Interestingly, the proposed legislation would empower the Secretary of Education (who is currently Betsy DeVos) – not Congress – to extend eligibility to anyone who graduates in 2021 or 2022, if the Secretary determines that the negative economic impact of COVID-19 warrants such an extension. Romney’s proposed bill would amend the Higher Education Act of 1965.
“Students graduating from college this year are suddenly facing significant hurdles entering the workforce,” Romney said. “…We must further ease the burden on students by allowing them to defer their payments until the economy regains normalcy.”
How It Would Work
The proposed legislation would work like this:
- For example, you graduate college in May 2020.
- Typically, you automatically would receive a six-month grace period on any federal student loan payments. In this example, you would not owe any federal student loan payments until November 2020.
- In November 2020, you would begin monthly federal student loan payments.
- Under the COVID-19 Graduate Relief Act, you would not owe any federal student loan payments until May 2023.
- In May 2023, you would make your first monthly federal student loan payment.
While the federal government would lose interest income for three years, you (the borrower) would save three years, or 36 months, worth of principal and interest payments. You can instead use those savings for living expenses, investments or debt repayment, for example. The proposal would not apply to private student loans, nor would it benefit graduate student loan borrowers.
House Legislation: Delay Student Loan Payments
Reps. Josh Harder (D-CA) and Brian Fitzpatrick (R-PA) introduced bi-partisan companion legislation in the House of Representatives, with six cosponsors. “In these uncertain times, jobs are down and students are learning through video conferences. Graduating from college, looking for a job, and paying off student loans are stressful enough, and we need to do what we can to help students succeed,” Fitzpatrick said. “By allowing this year’s graduates to defer their student loans payments for up to three years, our bipartisan legislation will allow them to enter the job market and give them one less thing to worry about.”
If this proposal becomes legislation, and student loan borrowers can delay federal student loan payments for three years, it would be a transformational change. Typical student loan forbearance lasts 12 months, although it can be extended. New graduates already receive a six-month grace period for their federal student loans. This new proposal would defer payments automatically for three years. Earlier this year, President Donald Trump first postponed federal student loan payments for 60 days through an executive order. Congress then extended your ability to pause federal student loan payments for six months – through the CARES Act – until September 30, 2020. In both cases, the interest rate is 0% on your federal student loans. This new proposal, if passed, would defer student loan payments up to five times longer than the CARES Act.