CARES ACT student loan relief

The CARES Act signed into law last week suspends payments and eliminates interest accrual for all federally-held student loans for six months, through September 30. These measures exclude private loans, privately-held FFEL loans and Perkins loans. The other five subsections of section 3513 mandate important additional relief. Under subsection (c) the six suspended payments (April to September) are treated as paid for purposes of “any loan forgiveness program or loan rehabilitation program” under HEA title IV. In addition to PSLF, this would include loan cancellation at the end of the 20- or 25- year periods for income-dependent repayment. Loan rehabilitation is a vital tool for borrowers to get out of default status (with accompanying collection fees, wage garnishments, tax refund intercepts, and ineligibility for Pell grants) by making nine affordable monthly payments. This subsection seems to offer a path for six of those nine payments to be zero payments during the crisis suspension period.

Subsection (d) protects credit records by having suspended payments reported to credit bureaus as having been made. Subsection (e) suspends all collection on defaulted loans, including wage garnishments, federal tax refund offsets and federal benefit offsets.

Finally, and importantly, subsection (g) requires USED to notify all borrowers by April 11 that payments, interest and collections are suspended temporarily, and then beginning in August, to notify borrowers when payments will restart, and that borrowers can switch to income-driven repayment. This last provision attempts to avert the wave of default experienced after prior crises (hurricanes, etc.) when, after borrowers in affected areas had been automatically put into administrative forbearance, the forbearance period ended and borrowers continued missing payments. Whether the “not less than 6 notices by postal mail, telephone or electronic communication” will actually solve the payment restart problem will depend a great deal not only on the notices but also the capacity of USED servicers to handle the surge of borrower calls and emails. At present servicers are struggling with handling borrower requests because many employees are in lockdown or quarantine.