Student loans are on hold – some borrowers are confused

Student loan payments can be suspended, but not everything is clear.

Here’s what you need to know – and what it may mean for your student loans.

Student loans

President Donald Trump paused your federal student loan payments until December 31, 2020. In a memorandum to U.S. Education Secretary Betsy DeVos, Trump ordered DeVos to extend several student loan benefits. However, while some benefits for students are clear, others are not explicitly mentioned. This has caused some confusion among student loan borrowers who are unsure of what exactly is included in the memorandum, which may impact their student loan repayment strategy. Here’s what we know and what we don’t know.

What we know

Let’s start with what we know.

1. Student loan payments will be suspended

Your federal student loans will be suspended until Dec.31, 2020, three months longer than the current break passed by Congress under the Cares Act, the $ 2.2 trillion stimulus package that Congress passed in March. The break only applies to federal student loans held by the US Department of Education. For example, this includes direct loans, but does not include most FFELP or Perkins loans. Although the order does not specifically reference private student loans, private student loans are expected to be do not included in the ordinance, given that previous executive action by Congress or Trump did not include private student loans in their student loan relief.

2. The payment break is optional

You can to choose whether to make student loan payments during the payment break. Therefore, the payment break is optional. If you choose to suspend payments, you don’t have to make a federal student loan repayment until January 1, 2021. Why would you make student loan repayments if you don’t have to? Answer: to pay off your student loans faster. This payment break is temporary, but it does not cancel your student loan debt. You will still owe your student loan balance after the payment break is over. Many borrowers who have extra cash now want to pay off their student loans during this time.

3. Interest won’t accumulate on your student loans

Until December 31, 2020, interest will not accrue on your federal student loans. Like the payment break, this is the same student loan benefit as under the Cares Act. Remember, your interest rate will not change permanently. Rather, it is a temporary change in interest to 0% during this period. However, your normal interest rate will resume as of January 1, 2021.

4. Cancellation of student loan is not included

Trump’s memorandum does not include student loan discount. This is in accordance with the Heals Act, which is the A $ 1 trillion stimulus package proposed by Senate Republicans, nor does it include outright student loan cancellation. In contrast, House Democrats proposed in the Heroes Act that financially troubled borrowers receive $ 10,000 in student loan forgiveness.

5. Education Secretary Betsy DeVos will implement these benefits for student loans

Trump has asked U.S. Secretary of Education Betsy DeVos to implement these benefits. According to Trump, the Secretary of Education “will take steps in accordance with applicable law to make appropriate waivers and modifications to the requirements and conditions of postponed economic hardship.” This could give DeVos some latitude to implement this executive action.

What we don’t know

Here’s what we don’t know. While you can make educated guesses about what’s included or just that key provisions of the Cares Act will be expanded, it’s important to read the memorandum. Why? There are several policy initiatives that not explicitly referenced in the memorandum. Here are a few :

1. Will non-payments be factored into the release of the civil service loan?

The memorandum does not explicitly refer to the cancellation of the student loan. Under the Cares Act, if you did not make payments while student loan payments were suspended, any non-payment of federal student loan debt “counted” toward the 120 monthly payments required for public service loan discount. For example, if you didn’t make any payments from March 2020 to September 2020, you would have six months of non-payment. Under the Cares Act, you would still receive “credit” for six payments for the Public Service Loan forgiveness program, which means you would need 114 additional payments to meet the 120 monthly payment requirement. The memorandum does not mention whether borrowers who apply for a utility loan forgiveness will receive this student loan benefit.

2. Will collection of student loan debts be suspended?

The memorandum does not explicitly refer to student loan debt collection. Trump’s initial 60-day executive order and the Cares Act halted collection of federal student loan debt. Until September 30, 2020, your wages, Social Security benefits, and tax refunds, for example, cannot be garnished to pay off the federal student loan debt in default. However, none of these elements is mentioned in the memorandum. While these benefits may continue until the end of the year, it’s not entirely clear.

Next steps

The next step is for DeVos to implement the president’s memorandum. The Department of Education has not announced the details of the extension of these student loan benefits until December 31, 2020. A reasonable assumption is that the student loan benefits provided for under the Cares Act will continue until the December 31, 2020. end of the year. However, another reasonable assumption is that the extension will only apply to a break in student loan payment and no interest accrued. It is also possible that Congress could pass stand-alone student loan legislation, or as part of a future stimulus package, linked to Covid-19, which could complement the president’s memorandum. For example, Congress could adopt a student loan proposal by Senator Lamar Alexander (R-TN), which Alexander introduced as part of the Heals Act.

How to repay student loans

Even with these student loan benefits, two things won’t change after the temporary benefits expire: your student loan balance and your interest rate. You will have the same student loan balance and the same interest rate as before these student loan benefits. Therefore, it is essential to assess your student loan repayment plan now. What’s the best way to start? Start with these four options, all free:

Resources: Student loans

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Trump: second stimulus checks may be over $ 1,200

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What Trump and Biden think about your student loans

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Trump wants at least $ 2 trillion for the next stimulus

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