Coronavirus and student loans: What borrowers should know

Thu, May 21, 2020, 6:51 PM 6 min read

This story has been updated with the latest information.

The coronavirus pandemic has forced millions of Americans into unemployment and hobbled household finances.

The Department of Education (ED) has taken several steps to help them weather the chaos, but many student loan borrowers are still confused over the options and protections given to them in the CARES Act and other policies.

The updated ED website states that the provisions in the CARES Act are intended to “provide relief to student loan borrowers during the COVID-19 national emergency, federal student loan borrowers are automatically being placed in an administrative forbearance,” which will not be charged interest.

The moves enable 43 million borrowers with a collective $1.5 trillion in outstanding student loans owed to the federal government to “temporarily stop making [their] monthly student loan payment” until September 30.

Private loan borrowers in one of the ten states — New York, Connecticut, Illinois, California, New Jersey, Vermont, Washington, Massachusetts, Virginia, and Colorado (as well as Washington D.C.) — will also be entitled to similar protections.

At the same time, according to a recent survey of nearly 40,000 student loan borrowers, 36% of Americans holding federal loans did not know that they were entitled to debt relief for their student loans as afforded to them by the CARES Act and 40% didn’t know that the protections were automatic.

In addition, 80% of private loan borrowers are unaware that COVID-19 relief existed for them.

WASHINGTON, DC - MARCH 27: Secretary of Education Betsy DeVos listens as U.S. President Donald Trump speaks during a briefing on the coronavirus pandemic in the press briefing room of the White House on March 26, 2020 in Washington, DC. President Trump signed the H.R. 748, the CARES Act on Friday afternoon. Earlier in the day, the U.S. House of Representatives approved the $2 trillion stimulus bill that lawmakers hope will battle the economic effects of the COVID-19 pandemic. (Photo by Drew Angerer/Getty Images) — Secretary of Education Betsy DeVos listens as U.S. President Donald Trump speaks during a briefing on the coronavirus pandemic in the press briefing room of the White House on March 26, 2020 in Washington, DC. (Photo: Drew Angerer/Getty Images)

What student loan borrowers should know

Here is the latest on student loans amid the coronavirus pandemic:

There will be a six month pause on student loan payments, from March 13 to September 30. The interest rate is 0% on the following federal student loans:
- Defaulted and nondefaulted Direct Loans
- Defaulted and nondefaulted FFEL Program loans
- Defaulted and nondefaulted Federal Perkins Loans
- Defaulted HEAL loans
Some FFEL Program and HEAL loans which are owned by commercial lenders, and some Perkins Loans owned by the higher education institution that the borrower attended are unfortunately not eligible for the 0% interest rate.
Private student loans were initially not covered by the CARES Act because ED “does not have the legal authority,” the website states.
But there are exceptions: Private student loan borrowers in New York, Connecticut, Illinois, California, New Jersey, Vermont, Washington, Massachusetts, Virginia, D.C. and Colorado have also worked with some lenders to extend relief to student loan borrowers — a full list of states with links can be found here.
The government has stated that it will “automatically adjust” federal borrowers’ account to reflect the 0% interest rate.
- Billing on federal student loans have been halted. Loan servicers are reporting monthly payments as “current,” but borrowers do not pay anything.
- If you wish to make payments still, “the full amount of your payments will be applied to principal once all the interest that accrued prior to March 13 is paid.”
- Some issues from implementation have arisen, such as Great Lakes mistakenly reporting payments as “deferred,” which has resulted in a lawsuit against them.
- All the benefits from the suspension of payment will be retroactive to March 13. So if you’ve already made payments since, you can request for a refund, if you wish to do so.
- If you don’t want to get refunded, all the interest you’ve paid on your loans since March 13 will go towards paying down your principal balance.

A woman wears a protective face mask as students prepare for Spring Break and an extended period of online classes due to coronavirus at Syracuse University, New York, U.S., March 12, 2020. Picture taken March 12, 2020. REUTERS/Maranie Staab — A woman wears a protective face mask as students prepare for Spring Break and an extended period of online classes due to coronavirus at Syracuse University, New York, U.S., March 12, 2020. Picture taken March 12, 2020. (Photo: REUTERS/Maranie Staab)

Those who have set up autopay will have that turned off. You can ask them to turn it on, if you wish.
- If you need that money back, ED will refund you any auto-debit payments processed between March 13 and September 30.
If you’re enrolled in an income-driven repayment plan and need to re-certify your income during this period of suspension, you have a six month automatic extension.
If you’re working towards Public Service Loan Forgiveness, you don’t need to pay if you had taken out a Direct Loan and were on a qualifying repayment plan prior to the suspension and were working for a qualified employer during the suspension full-time.
- All suspended payments will count towards your progress to 120 payments.
If you’ve defaulted on your student loans, no entity is allowed to seize your tax refunds or Social Security income, or garnish your wages, for six months.
- If your federal tax refund has already been seized, if it happened on or after March 13 and before September 30, that will be returned to you.
- If your wages have been garnished between March 13 and September 30 and sent to ED, the department will refund that.
- Private debt collection agencies contacted by the federal government are told to “not make collection calls and not accept auto-debit payments” from March 13 to September 30. But you can reach out to them if you want to continue to pay.
- But the implementation again, has been criticized: Thousands of borrowers were still having their wages garnished by ED on their defaulted federal student loans, which has resulted in another lawsuit, this time against the department.
If a borrower enters an income-driven repayment plan right now during the forbearance period, their payments will be suspended and the months will still count towards IDR forgiveness.

When you need to start paying again, the “servicer will contact you, no later than August, to remind you that you will need to start making payments again,” ED advised.

For those looking at the “borrower defense” rule — intended to offer loan forgiveness to those holding federal loans, who had attended a college or a university which had misled them or engage in other misconduct or violation of certain state laws — there was no clear guidance on where that stands.

The House and Senate both have passed legislation that reverses ED Secretary Betsy DeVos’ several of the rule which would make it harder for applicants to seek debt relief, and House Speaker Nancy Pelosi has sent the resolution to President Trump. He will have to respond imminently.

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Aarthi is a reporter for Yahoo Finance covering consumer finance and higher education. Follow her on Twitter @aarthiswami.

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