With this relief looming on September 30, President Trump signed an executive decision on August 8 that maintains the moratorium on monthly payments until the end of the year.
The order orders Education Secretary Betsy DeVos to allow borrowers to temporarily suspend these payments due to economic hardship. But unless the Department of Education deviates from some of the rules that normally govern postponements in difficult economic times, some types of loans may not benefit from an interest freeze after September 30, and some borrowers could. being denied relief in the last three months of the year.
Here’s what to expect.
Q: Some say President Trump does not have the legal authority to do this. Can borrowers count on payment relief until December 31?
Probably yes. The White House argues that Section 432 of the Higher Education Act gives the Secretary of Education “broad authority” to act.
In addition, the continued suspension enjoys bipartisan support, said Mark Kantrowitz, vice president of research at Savingforcollege.com. As a result, he said, it is unlikely that anyone will file a court challenge.
Many believe Congress, which remains divided on issues such as UI, will eventually pass a sweeping relief plan that supersede the decree-law and extend the terms of the current relief program for most federal student loan borrowers until December 31 or beyond.
Q: What types of loans and borrowers are eligible?
There are two main types of student loans: federal and private.
Federal loans, including Stafford, Grad PLUS, Parent PLUS, and Consolidation Loans, account for over 90% of outstanding student loans and are eligible for suspension of payments, as long as they are owned by the US Department of Education.
Some federal loans issued under the federal family education loan program, which was discontinued in 2010, are owned by entities other than the Department of Education, including commercial lenders. Borrowers with these loans cannot take advantage of the suspension unless they consolidate their loans into a new loan, a step which is not always beneficial (see below).
Loans from private lenders are also not eligible.
Q: Which borrowers may not be able to use the new suspension?
Many believe the Department of Education will issue guidelines that would allow virtually all borrowers with federal student loans held by the department to take advantage of the suspension of payments from Oct. 1 to Dec. 31.
Otherwise, Kantrowitz said, loan managers could prevent borrowers who have already used the three years of postponement of allowed economic hardship from receiving the additional three months of payment relief.
The same would be true of in-school or defaulted borrowers, groups for which deferrals of economic hardship are normally prohibited.
Rehabilitation borrowers – a one-time chance to remove a default from a borrower’s credit report in exchange for making nine on-time payments over 10 months – were able to count suspended payments from March 13 through September 30 to the required nine. But Mr Kantrowitz said under the decree they might not be able to continue the practice.
A representative from the Ministry of Education said, “We are reviewing the presidential memorandum and will implement it quickly to help support students affected by the virus.”
Q: Does the decree suspend both payments and accrued interest?
While the rules that normally govern hardship deferrals only freeze accrued interest on certain types of loans, the Presidential Memorandum directs the Secretary of Education to suspend payments and stop the accumulation of interest on all loans. federal loans held by the Department of Education.
Q: What should I do to have my refunds suspended?
Scott Buchanan, executive director of the Student Loan Servicing Alliance, a non-profit organization that represents businesses that collect payments on student loans, expects the extended suspension of payments on loans held by the federal government is automatic, but awaits advice from the Ministry of Education.
Q: If I can afford to make monthly payments during the suspension period, should I do so?
It depends. If you have a credit card or other debt with a higher interest rate or don’t have emergency funds, put your student loans on hold and use the money for those purposes instead, said. Heather Jarvis, a lawyer who teaches financial professionals about student loans.
Otherwise, if “you are safe in your job and don’t expect to benefit from a loan cancellation program, you might be better off making payments during that time,” she said. .
This is because unless you have accrued unpaid interest, any payments you make during this period will be applied to your loan principal, allowing you to pay off the debt faster.
If you have more than one student loan, channel payments to the one with the highest interest rate.
Q: I have federal loans that don’t qualify. Can I get help?
If you have subsidized Stafford loans that do not belong to the Department of Education and you are unemployed or having economic difficulties, you can apply for a deferral. This suspends monthly payments and prevents additional interest from accumulating. Otherwise, you can request a forbearance, which suspends payments but allows interest to continue to accumulate.
If you have more than one loan, you can combine them into a consolidation loan, which qualifies for the suspension of payments and the freezing of interest. But you will lose any interest rate reductions you got for making on-time or automatic payments and if you are in a loan cancellation program, the consolidation could reset the clock for 10 to 25 years. payments required before the balance can be reversed, Kantrowitz said.
Q: I am in a loan repayment program. Will my payments be suspended?
For borrowers on income-driven repayment plans, which cap student loan payments at a portion of the borrower’s annual discretionary income, the three suspended payments will count toward loan cancellation after 20 or 25 years.
But for those participating in the federal government’s civil service loan forgiveness program, it is not clear whether payments suspended under the decree can be applied to the 120 payments required before the balance can be reversed, a Mrs. Jarvis said.
These borrowers can take advantage of the payment break. But they may have to add three installments at the end of their loans to compensate.
—Josh Mitchell contributed to this article.
Write to Anne Tergesen at [email protected]
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