Federal Student Loan Relief Available to Borrowers Amid COVID-19

3/27/2020 - By Chris Stennett, CFP

The Department of Education announced a student loan relief package for borrowers impacted by the Coronavirus. This relief only applies to outstanding federal student loans that are owned by the Department of Education. Loans owned by commercial lenders or educational institutions are not eligible for relief, even if they are federally guaranteed. All terms of the relief announcement are subject to change by the Department of Education and/or the federal government. The guidelines are as follows:

Temporary Suspension of Interest Rates – All interest rates for federal student loans held by the Department of Education will be set to 0% starting on March 13, 2020, for a period of at least 60 days. The coronavirus stimulus bill passed by the Senate on March 25th would extend this period through September 30, 2020. Borrowers will make the same monthly payment, which will be applied 100% to the principal less accrued interest prior to March 13th. Borrowers do not need to contact the Department of Education to enact the rate change.
Temporary Suspension of Payments – Borrowers can request an administrative forbearance to temporarily suspend their student loan payments. The suspension will be backdated for March 13, 2020, and will last for at least 60 days. Again, the recent bill passed by the Senate seeks to extend this period through September 30, 2020. Borrowers who are current on their repayment will need to request the suspension directly from their federal loan servicer. Borrowers who are more than 30 days behind payments or delinquent by March 13, 2020, will have payments suspended automatically, as a precaution. Automatic re-payments must be re-instated by the borrower when the suspension period ends.
Temporary Relief from Garnishments and Collections – The federal government has paused its collection practices for borrowers who have defaulted on their student loans. In addition, Social Security payments, tax returns, and paychecks will no longer be garnished. Employees will get the short-term benefit of larger paychecks and refunds. Employers are required to make paycheck adjustments, but this is not automatic. Employees should contact their employer’s Human Resources contact to ensure changes are made.

The Department of Education may extend the 60-day interest waiver and administrative forbearance period that began on March 13, 2020, depending on the status of the COVID-19 national emergency. For additional information and updates on rule modifications, visit the federal student aid website.

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ABOUT THE AUTHOR | Chris Stennett, CFP
Chris is a financial advisor and Certified Financial Planner™ practitioner for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. He serves individuals and organizations as a comprehensive financial planner and coordinator of investment activities. His areas of expertise include investment management, income planning, tax and estate planning, and risk management.