Here’s what it all means for the 43 million Americans holding $1.5 trillion in federal student loans.
No payments and no interest
The Trump administration gave federal student loan borrowers the option last week of postponing payments for at least 60 days, while automatically suspending the bills of those in delinquency. Even if people choose to continue making payments, the Education Department would still waive interest on their loans for at least two months.
This week, Congress agreed to extend the timeline through Sept. 30 and made the suspension automatic. For those six months, borrowers can postpone their payments without penalty or interest accruing. What’s more, each month would still count toward loan forgiveness for borrowers in public service jobs. It would also count toward student loan rehabilitation, a federal program that erases a default from a person’s credit report after nine consecutive payments.
While this plan could help 95 percent of borrowers with federal loans, it excludes those with federal debt held by private companies. That debt is from the old bank-based Federal Family Education Loan (FFEL) program that ended in 2010 when the Obama administration moved strictly to direct lending. The plan also excludes federal Perkins loans for low-income students that are held by colleges and universities.
People with bank-based federal loans that are not held by the government can consolidate their debt to take advantage of the waiver and payment suspension. But that process could take some time, and unpaid interest will be added to their balance.
Halt to defaults and return of funds
The Education Department has stopped all requests to the U.S. Treasury Department to seize the tax refunds, paychecks and Social Security benefits of people in default on their federal student loans.
The department will hold off on transferring new accounts to its private debt collectors for at least 60 days from March 13. Those companies must stop calling borrowers, issuing notices or billing statements. You can, however, reach out to inquire about your debt.
Congress codified the reprieve in the spending bill and extended it through Sept. 30, but it applies only to student loans held by the federal government. People in default on commercially held bank-based federal loans could still have a portion of their paycheck, disability income or entire tax refund seized by the government.
The Education Department is returning about $1.8 billion to more than 830,000 defaulted borrowers whose money was withheld on or after March 13, the day President Trump declared a national emergency. If you filed your taxes early and had your refund seized before the 13th, the money will not be returned. And the refund is available only to people with debt within the federal government’s student loan portfolio.
Debt cancellation and repayment
Despite all of the excitement over congressional Democrats’ proposals to cancel $10,000 or $30,000 in student debt, the plans failed to gain bipartisan support.
Liberal lawmakers said debt forgiveness would have been a boon for the most distressed borrowers, as most people in default owe less than $10,000. Republicans argued the proposals were unfair to people who did not attend college or who have repaid their student loans.
Nevertheless, lawmakers agreed to a temporary tax break for companies who help their employees pay down their student debt. Student loan assistance has become a popular recruitment tool for start-ups and large firms, who have lobbied Capitol Hill to support the perk through the tax code.
Now, companies will get a tax break for providing employees up to $5,250 a year to repay education debt. Critics of this tax break say it does nothing to help struggling borrowers who have lost their jobs or low-wage workers without access to the benefit. Proponents of student loan assistance programs say the tax break will encourage other companies to offer the benefit.
No federal action on private loans
The federal government holds the vast majority of student loans, but there are still millions of people with education loans from banks and other financial companies. There is no relief for them in the congressional package.
A few private lenders are offering assistance during the outbreak. Discover Financial is allowing some borrowers to extend their payments or postpone them without accruing interest for two months. Citizens Bank is waiving late fees and offering forbearance for three months. Sallie Mae is offering a three-month suspension of payments, while Wells Fargo is providing a 90-day payment deferral.
It is best to contact your lender to discuss your situation, as each company has its own assistance programs and rules for whether you qualify for relief.