This story is developing.
President Donald Trump will suspend federal student loan payments until further notice if Congress doesn’t reach agreement on a final stimulus package.
Here’s what you need to know.
After Congress failed to reach a stimulus deal today, Trump said tonight during a press conference in New Jersey that he plans to issue an executive order on a host of economic issues, including student loans, a payroll tax cut, eviction moratorium and unemployment benefits if Congress fails to act on a stimulus package. While the timing is uncertain, Trump says that his executive order, among other things, would “defer student loan payments and defer student loan interest until further notice.” While details are not available, this possible executive order likely will apply to federal student loans only such as Direct Loans that are covered under the Cares Act, which was the $2.2 trillion stimulus package that Congress passed in March. Trump said that lawyers are currently drafting an executive order and he could sign the order as soon as this week. It’s unclear at this point whether the executive order will be expanded to include other federal student loans such as FFELP loans or Perkins Loans, which were not included under the Cares Act. The executive order apparently would not include second stimulus checks.
Student loan relief currently ends on September 30, 2020
If Trump issues an executive order, Trump’s executive order could extend student loan relief under the Cares Act beyond September 30, 2020. The Cares Act:
- set interest rates at 0%, so interest will not accrue on your federal student loans;
- halted collection of federal student loan debt; and, among other benefits,
- “counted” non-payment of federal student loan debt toward the 120 required monthly payments for public service loan forgiveness.
The student loan relief included in the Cares Act followed Trump’s executive action earlier this year that provided similar student loan relief for 60 days prior to passage of the Cares Act. Absent an extension from Congress, the student loan relief in the Cares Act will expire on September 30, 2020. Without Trump’s new executive order, this means that your student loan payments would resume as early as October 1, 2020. Trump, who is running for re-election, has not said for how long these student loan benefits will continue and whether collection of federal student loan debt also would be halted.
New stimulus: student loans
It’s unclear if Trump’s executive order would include any elements of a stimulus proposal made by Sen. Lamar Alexander (R-TN). Alexander proposed a new student loan repayment plan as part of the Heals Act. Here are some highlights:
- No Student Loan Payments: If you have no income, you would make no student loan payments.
- 10% Discretionary Income: If you have income, your monthly student loan payments would be based on 10% of discretionary income.
- Student Loan Forgiveness: Like current income-driven repayment plans, you can receive student loan forgiveness after 20 or 25 years. Non-payments during months in which you pay $0 will count toward the 20 or 25 years for student loan forgiveness.
Alexander’s proposal would continue the federal student loan payment pause only for borrowers with no income. The 10% discretionary income proposal is similar to existing income-driven repayment plans that are available to federal student loan borrowers. Trump has publicly supported simplifying federal student loan repayment plans, including student loan forgiveness after 20 to 25 years of student loan payments.
How to pay off student loans
Even if this executive order materializes, you will still owe student loan payments when the executive order ends. Therefore, make sure you have a game plan to pay off student loans. What’s the best way to start? Start with these four options, all of which have no fees: