Federal student loan borrowers late on their payments have been granted some relief by the Department of Education, which will stop the collections process for federal student loans in default, including wage garnishment actions, 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 move will provide relief to nine million borrowers in default on their student loans, some of whom may face salary cuts or layoffs due to the economic crisis caused by coronavirus stoppages.
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 more than 830,000 borrowers. 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. DeVos said the number of borrowers who ultimately benefit could be higher than 830,000 because many offsets are currently in progress.
“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 new actions complement earlier instituted measures of relief for federal student loan borrowers, kicked off by the Trump administration’s March 13 announcement freezing interest on federal student loans.
A week later on March 20, the education department said federal student loan borrowers will have the option to suspend their loan payments for two months. At the time, DeVos said that during the health emergency, “everyone should be focused on staying safe and healthy, not worrying about their student loan balance growing.”
DeVos said the department directed all federal student loan servicers to grant an administrative forbearance to any borrower with a federally held loan who requests one. The forbearance will be in effect for a period of at least 60 days, beginning March 13. To avail of this, borrowers should contact their loan servicer online or by phone.
“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.
The education secretary last week also authorized an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, or who becomes more than 31 days delinquent.
Student Loan Repayment
Since the Coronavirus outbreak, borrowers have been searching for ways how to lower their monthly student loan payments. Following Trump’s executive action, new congressional legislation – known as the CARES Act – would grant several benefits to help student loan borrowers manage their money due to the coronavirus emergency. The current benefits would include:
- Ability to pause payment on your federal student loans until September 30, 2020.
- No interest on your federal student loan payments through September 30, 2020.
- Ability to count these 6 months of no federal student loan payments for purposes of any student loan forgiveness program, including public service loan forgiveness.
- Ability for your employer to pay up to $5,250 of your student loans tax-free.
Here are some of the key things to remember
The suspension of payments applies only to student loans that are held by the federal government, which are the vast majority of student loans issued since 2010. Some federal student loans under the Federal Family Education Loan (FFEL) Program loans are owned by commercial lenders, and some Perkins Loans are held by the institution you attended. These loans are not eligible for this benefit at this time. This benefit also does not apply to private (non-federal) student loans owned by banks, credit unions, schools, or other private entities.
Federal student loan borrowers do not need to take any action to suspend payments. Your federal student loan servicer will suspend all payments without any action from you. You do not need to contact your student loan servicer.
Interest will not accrue on your federally-held loans while your payments are suspended.
The Department of Education has stopped the collection of defaulted federally-owned student loans including garnishment of wages, the offset of tax refunds, and Social Security benefits. There is no additional action required from you for your federally-owned loans.
If your wages are being garnished because your student loan is in default, you must contact your employer’s human resources department to have your paychecks adjusted.
If you are in the process of communicating with a private debt collection agency and want to continue that contact (say, to continue a payment arrangement you already set up), you should contact the Department of Education’s Default Resolution Group at 1-800-621-3115.
FAQ’s
Which loans are covered by the announcement?
From March 13, 2020, through Sept. 30, 2020, the interest rate is 0% on the following types of federal student loans owned by the U.S. Department of Education (ED)
- Defaulted and nondefaulted Direct Loans
- Defaulted and nondefaulted FFEL Program loans
- Federal Perkins Loans
Please note that some FFEL Program loans are owned by commercial lenders, and some Perkins Loans are owned by the institution you attended. These loans are not eligible for this benefit at this time.
Will my monthly payment go down because interest is being waived?
No. Your monthly payment will remain the same, but the full amount of the payment will be applied to already accrued interest and/or outstanding principal.
How long will interest be waived?
Interest will not accrue on federally held student loans for at least 60 days, beginning on March 13, 2020. ED may extend that period, depending on the status of the COVID-19 national emergency.
If I made a payment after the president signed the CARES Act on March 27, 2020, can I receive a refund?
Yes, any payment you made during the administrative forbearance period (March 13, 2020, through Sept. 30, 2020) can be refunded. Contact your loan servicer to request that your payment be refunded.
What if I am already more than 31 days past due on my payments?
If you’re at least 31 days behind on your payments as of March 13, 2020 or become more than 31 days delinquent after that date, you’ll automatically be placed in an administrative forbearance to give you a safety net during the COVID-19 national emergency.
My company has closed because of coronavirus/COVID-19. I’m not making any money and can’t pay my student loan bill. Can I stop making payments until I’m working again?
If you’re having trouble making payments, contact your loan servicer as soon as possible.
I’m currently on an income-driven repayment plan. I’m making a lot less money because of the coronavirus outbreak and don’t know when my income will return to the same level. What can I do?
If you’ve had a significant change in income, you can ask to have your monthly payment recalculated at any time.
On March 25, 2020, ED announced that my federal tax refund would not be withheld to repay my defaulted federal student loan debt. My refund has already been taken. Can I get it back?
Your federal tax refund will be returned to you if your refund was in the process of being withheld—on or after March 13, 2020, and before Sept. 30, 2020, the date the president announced executive actions related to the COVID-19 national emergency—for the repayment of a defaulted federal student loan. This flexibility will last for at least 60 days from March 13, 2020.
- Your federal tax refund will not be returned to you if the process to withhold your refund was completed before March 13, 2020.
- If you have questions about whether your federal tax refund was withheld, call ED’s Default Resolution Group at 1-800-621-3115
On March 25, 2020, ED announced that a portion of my Social Security payment, including disability benefits, would not be withheld to repay my defaulted federal student loan debt. My Social Security payment has already been taken. Can I get it back?
The portion of your Social Security payment that was taken will be returned to you if your payment was in the process of being withheld—on or after March 13, 2020, and before Sept. 30, 2020, the date the president announced executive actions related to the COVID-19 national emergency—for the repayment of a defaulted federal student loan.
- Your federal tax refund will not be returned to you if the process to withhold your refund was completed before March 13, 2020.
- If you have questions about whether your federal tax refund was withheld, call ED’s Default Resolution Group at 1-800-621-3115
On March 25, 2020, ED announced that my wages would not be garnished, but money is still being taken from my paycheck. What should I do?
If your wages continue to be garnished after the president’s March 13, 2020, announcement, you should contact your employer’s human resources department. If ED receives funds from your paycheck that should have been stopped as a result of the March 13 announcement, we will refund your garnished wages.
