The Ever-Changing World of Student Loans
Guest post by Financial Coach, Meagan Landress, CSLP®
Due to both COVID19 relief and other long-standing Department of Education (DoE) goals, student loans have been rocked with changes this year. For those with student loans (or those with clients who have student loans), it’s been hard to catch our breath to keep up in 2020! Let’s take a look back at the most important changes and what they mean for you:
March 27, 2020
The $2 trillion stimulus plan, the CARES Act, was signed into law by President Trump in response to the novel COVID-19 virus pandemic, providing enormous relief to borrowers with federal student loans. Here are the most important provisions:
Federal student loan payments were suspended for six months through September 30, 2020.
Keep in mind that some FFEL (Federal Family Education Loans) are not held by the Dept of Education and do not qualify for this suspension.
Unfortunately, this bill still does absolutely nothing for borrowers with private student loans.
This suspension took effect automatically without any effort on the part of a borrower.
The six months of suspended payments count towards loan forgiveness programs, including Public Service Loan Forgiveness (PSLF) and Income Driven Repayment Forgiveness (PAYE, REPAYE, IBR).
No interest will accrue for six months until September 30, 2020, extending the Trump student loan interest freeze, which started March 13, 2020.
Borrowers in default will have their six months of suspended payments count towards the nine months needed for loan rehabilitation.
No collection, wage garnishment, or seizure of tax refunds will happen (backdated to March 13, 2020).
For borrowers pursuing PSLF or longer-term forgiveness, these provisions are extremely positive because these six months count toward their forgiveness timelines without requiring payments. For borrowers seeking to pay off their federal loans, the 0% interest makes any payments made during this time go further, reducing costs over time and possibly accelerating the time it takes to become debt free.
Most recent changes to student loan servicing companies
June 24, 2020
A press release announced that the Department of Education’s Office of Federal Student Aid signed new contracts with five companies to service federal student loans starting in mid-December 2020. But don’t panic, because then:
August 4, 2020
The chief operating officer of Federal Student Aid, Mark Brown, took to the Department of Education’s blog to calm the waters, explaining that even though the DoE awarded these new servicer contracts, these companies won’t start immediately:
“We’ve got to first put the tools, technology, and training in place to ensure that you get the right answer with every interaction.
To make sure there’s no interruption with your current loan servicer, we’ve made it possible to extend the servicing work for FedLoan Servicing (PHEAA), Great Lakes, Navient, and Nelnet through December 2021 and for CornerStone, Granite State – GSMR, HESC/Edfinancial, MOHELA, and OSLA Servicing through March 2022.”
Overall, this is good news. The DoE is working to improve the flawed federal student loan system and taking the time to ensure a smooth transition. This gives us a second to breathe, which is good because there are still more changes to come this year.
August 8, 2020
President Trump suspended student loan interest and payments for the rest of 2020. The text of President Trump’s executive order states that the Secretary of Education will modify the terms of economic hardship deferment, “to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”Further clarification was made on:**
August 21, 2020
The U.S. Department of Education issued a press release officially confirming that the three-month extension would, “count toward the 120 payments required by the Public Service Loan Forgiveness program and as payments that are required to receive forgiveness under an income-driven repayment plan.”Studentaid.gov's website also reflects that the extended months will continue to count toward loan rehabilitation programs, and collections efforts on government-held federal student loans (wage garnishments and Social Security offsets) will continue to be suspended through the end of the year.And as of this writing, Student Aid is answering the "Will interest be suspended" question as YES, until December 31, 2020. I'm guessing they're rolling with it even though there's still a big debate on whether or not Trump can do this via executive order.At the end of the day, the extended pause on payments and interest will be lifted at some point (currently scheduled for January 2021). Regardless of when it is, you are the one that manages your student loan debt - not the government, your loan servicer or anything else. If you’re not sure about your student loan plan, that’s my bread and butter! Send me an email and let’s make sure you’re on track.
Meagan started her own practice – Financial Coach Meagan – in March of 2017 to specifically help people who are beginning their financial planning journey with student loan debt in the mix. She was the first person in Georgia to acquire the CSLP® designation (Certified Student Loan Professional), and her goal is to bring clients peace of mind by getting their finances organized, establishing a priority order of next-steps, and mapping out the timetable for achieving the goals set. She can be reached at meagan@financialcoachmeagan.com or 678.983.2282.