Americans will get a six-month reprieve from federal student loan payments as the coronavirus pandemic leads to job losses and economic turmoil nationwide.
As part of the coronavirus relief billpassed through Congress and signed by President Donald Trump on Friday, lenders must stop all payments for federally held student loans through Sept. 30. During that time, interest will not accrue on the loans and nonpayment during that period cannot be used to affect credit scores or a person’s qualification for loan forgiveness.
The bill also suspends any wage garnishment or tax refund reduction for people who have defaulted on their federal student loans. It does not, however, have any effect on private student loans, though the vast majority of the $1.64 trillion in student debt in the US is federal. Private loans made up about 12% of all education loans in 2018–2019, according to the College Board.
The student loan provisions will take effect immediately, according to a staffer on the House Education and Labor Committee. However, the staffer later confirmed that borrowers with Perkins and commercially held Federal Family Education Loans will not qualify for suspended payments. Insider Higher Education reported Friday that some 1.2 million borrowers will not qualify, though some advocacy groups believe the number is closer to 9 million.
Lenders will have to notify borrowers that their federal student loan payments were suspended within 15 days of Trump signing the bill, which he did Friday evening. Beginning Aug. 1, lenders are also required to notify borrowers when their student loan payments will start up again with at least six notices.
Over the next six months, borrowers will still have the opportunity to continue paying down the principal on their loans, should they choose to do so. The Department of Education had already set federal student loan interest rates at 0% for a 60-day period beginning March 20.
In addition, 830,000 federal student loan borrowers late on their payments have been granted some relief by the Department of Education, which won’t garnish their wages or withhold money from their federal benefits or tax refunds for at least 60 days starting March 13 to alleviate the financial stress caused by the coronavirus pandemic.
The Education Department has stopped all requests to the U.S. Treasury to withhold defaulters’ federal benefits and garnish their wages. These withholdings, known as “Treasury offsets,” are permitted by federal law and are typically applied toward repayment of defaulted federal student loans.
U.S. Secretary of Education Betsy DeVos also directed the department to refund approximately $1.8 billion in offsets to them. The refunds represent offsets that were in the process of being withheld on March 13, the date President Trump declared a national emergency and announced emergency executive actions related to COVID-19, the disease caused by the coronavirus.
“These are difficult times for many Americans, and we don’t want to do anything that will make it harder for them to make ends meet or create additional stress,” said DeVos in a press statement. “Americans counting on their tax refund or Social Security check to make ends meet during this national emergency should receive those funds, and our actions today will make sure they do.”
“These are anxious times, particularly for students and families whose educations, careers and lives have been disrupted … and I hope it provides meaningful help and peace of mind to those in need,” said DeVos last week.