On Saturday, President Trump signed an executive memorandum that purports to extend student loan relief for millions of Americans. But the memorandum is vague, and it provides borrowers with little insight about borrowers’ rights, options, or obligations.
Trump issued the executive memorandum after Congress was unable to reach a compromise on extending student loan relief and other economic assistance programs that are expiring. Congress had suspended all payments, interest, and collections on government-held federal student loans for six months under the CARES Act. That student loan relief expires at the end of September. Democrats had supported a 12-month extension of the CARES Act’s student loan provisions, and an expansion of those provisions to cover other types of student loans, but Senate Republicans rejected this.
Key questions remain unanswered about the latest presidential memorandum, including how the order will impact borrowers in default, whether the extension of relief would be automatic, and whether borrowers on track for loan forgiveness programs will still get credit. The U.S. Department of Education has not responded to a request for comment, and the Department’s Student Aid Coronavirus website has not been updated.
Here’s what we know.
What Is The Timing of Trump’s Student Loan Order?
President Trump made public statements late last week suggesting that federal student payments and interest would be suspended “until further notice,” perhaps indefinitely. However, the memorandum only provides for a short three month extension, to December 31, 2020. So this is by no means a lengthy, open-ended, or indefinite suspension.
What Student Loans Are Covered By Trump’s Student Loan Order?
The memorandum does not specify what student loans are covered. However, the CARES Act only covered government-held federal student loans. Commercially-issued FFEL-program loans, Perkins loans, and private student loans were excluded from the CARES Act. The presidential memorandum is billed as an “extension” of existing protections, not an expansion, thus suggesting that no additional loans would be covered. This is further supported by the memorandum’s references to provisions of the Higher Education Act, which do not cover other types of student loans.
Will Borrowers Have To Do Anything To Qualify for the Student Loan Extension?
It is unclear whether the extension provided by the memorandum will be automatic. Under the CARES Act, interest and payments were automatically suspended for student loan borrowers, and no affirmative steps were required to obtain the relief. However, the Trump administration’s initial executive order in March suspending student loan payments required that borrowers contact their servicers to request the relief. The memorandum issued on Saturday simply states that the suspension should be continued “as necessary” — it is unclear if that puts the burden of determining that on the Department of Education, or on individual borrowers.
What About Student Loan Borrowers In Default?
It is not at all clear from the memorandum how this will impact borrowers who are in default on government-held federal student loans. Under the CARES Act, all involuntary collections against borrowers in default — such as wage garnishments and seizures of tax refunds — were temporarily halted. In addition, the months of suspended payments and interest would still qualify for loan rehabilitation programs, which allow borrowers to cure defaulted loans via temporary repayment plans. The memorandum does not reference defaulted borrowers at all, and so it is unclear if borrowers in default will have to resume payments or incur costly wage garnishments again after September 30.
Will The Extension Count Towards Loan Forgiveness?
Under the CARES Act, the months of suspended payments count towards loan forgiveness programs, including Public Service Loan Forgiveness, even if no payments are made, as long as the borrower otherwise qualifies and was on track prior to the CARES Act’s implementation. The memorandum, however, does not state whether or not that would continue to be the case during the extension between September 30th and December 31st. If those months do not count, or if the Education Department does not provide clear guidance, borrowers may be faced with a difficult decision to resume normal repayment to maintain progress towards loan forgiveness programs, or continue with suspended payments and risk having those months not be counted.