President Donald Trump’s executive order may have a big impact on your student loans.
Here’s what you need to know — what it means for your student loans.
In a memorandum to U.S. Secretary of Education Betsy DeVos, Trump directed DeVos to extend several student loan benefits until December 31, 2020. The student loan relief follows similar student loan relief contained in the Cares Act (the $2.2 trillion stimulus package), which followed Trump’s executive action earlier this year that provided similar student loan relief for 60 days prior to passage of the Cares Act. Let’s dive in to understand what this means for your student loans. “Currently, many Americans remain unemployed due to the COVID-19 pandemic, and many more have accepted lower wages and reduced hours while States and localities continue to impose social distancing measures,” Trump wrote in the memorandum. “It is therefore appropriate to extend this policy until such time that the economy has stabilized, schools have re-opened, and the crisis brought on by the COVID-19 pandemic has subsided.”
Pause student loan payments
Under Trump’s executive action, your federal student loans will be paused through December 31, 2020. This means that you do not need to make payments until January 1, 2021. Absent this extension, your federal student loan payments would have resumed on October 1, 2020. Why? Congress passed the Cares Act, the $2.2 trillion stimulus package, in March, which provided multiple student loan benefits, including a student loan payment pause. If you want to pay off student loans faster, you can still pay your federal student loans during this period. Trump wrote in the memorandum that many student loan borrowers have continued to make student loan payments since March, despite the temporary pause due to the Cares Act, to pay off their student loans faster.
Interest will not accrue on your student loans
Until December 31, 2020, interest will not accrue on your federal student loans. Importantly, this does not change your interest rate. Rather, it means that during this period, no new interest will accrue on your federal student loan balance.
What about Public Service Loan Forgiveness?
Under the Cares Act, if you did not make payments while student loan payments were paused, any non-payment of federal student loan debt “counted” toward the 120 required monthly payments for public service loan forgiveness. Similarly, the Cares Act also halted collection of federal student loan debt. Trump’s memorandum specifically references “continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education.” However, while these benefits also may continue, Trump’s memorandum does not specifically reference student loan debt collection or counting non-payments toward public service loan forgiveness, both of which were included as student loan relief in the Cares Act.
Is student loan forgiveness included?
In the wake of Covid-19, in particular, many student loan borrowers have asked whether their student loan debt will be cancelled. The answer is this: Trump’s executive order does not include student loan forgiveness. Like the Cares Act and the Heals Act, the $1 trillion stimulus package that Senate Republicans proposed, the executive order will not cancel your student loans. House Democrats proposed $10,000 of student loan forgiveness only for borrowers who are struggling financially, but the Senate has not passed the Heroes Act. There have been multiple legislative and policy proposals to cancel student loans. For example, like Sen. Bernie Sanders (I-VT), Sen. Elizabeth Warren (D-MA) proposed student loan forgiveness during her presidential campaign, and Student Debt Crisis, a student loan advocacy non-profit, recently sent Warren a petition signed by 1.2 million people to cancel student loan debt. Former Vice President Joe Biden proposed a Covid-19 student loan forgiveness plan to cancel up to $10,000 in student loan debt for each borrower and forgive all undergraduate tuition from two- and four-year public colleges and universities.
Does this apply to all federal student loans?
No, the executive order only applies to federal student loans owned by the federal government. For example, this includes Direct Loans such as Stafford Loans. However, most FFELP Loans and Perkins loans not owned by the federal government. Therefore, if you have one of these student loans not owned by the U.S. Department of Education, you would not benefit from these student loan benefits and must make student loan payments in the normal course. Similarly, if you private student loans, payments would be due in the normal course. You can contact your student loan servicer if you are not sure what types of student loans that you have.
How to pay off student loans
Remember this: even if your student loans are paused, you will still owe student loan payments when the executive order ends. This is important because your balance will not disappear as a result of this extension. 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: