Attention: Share this important update on student loans and student loans stimulus packages with ANYONE who has student loan debt: yourself, family, friends, etc.
The student loan details of the $2 trillion stimulus package are released and that they are game-changing:
Interest AND payments are being suspended on all federal student loans (not FFEL, unfortunately) for 6 MONTHS, now through Sept 30th.
The suspension of payments and halting of interest accrual are going to be backdated to 3/13 and automatic; nothing a borrower must do.
Those enrolled in Income-Driven plans are going to be ready to count this six month period towards available loan forgiveness… including PSLF, assuming they’re meeting the utilization requirements.
Anyone pursuing PSLF is suggested to easily enjoy the payment holiday, as making unnecessary payments would only increase the value of forgiveness.
We’ll got to get some guidance still from the Dept of Ed on how this may work for graduating students, so please stay tuned for updates.
FFEL loans and personal loans (including people who are refinanced) don’t qualify for the stimulus. i’m in discussions with our partners about possible matching benefits. Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered investment adviser . Cetera is under separate ownership from the other named entity.
This stimulus package for student loans did not cover private loans. In general, private borrowers could not benefit much from the government aid programs. Unfortunately, private loan borrowers do not have many options to deal with debt as the federal borrowers do. Yet, read till the end of this guide to get familiar with private loan opportunities.
Additionally, Federal Family Education Loans do not qualify for the stimulus package for student loans if commercial lenders distributed them. Currently, such loans are owed by more than 6 million debtors. In other words, at least 6 million federal loan borrowers who got the debt from commercial lenders cannot benefit from the COVID-19 relief.
How to Get Eligible in Stimulus Package for Student Loans?
Although many old federal debt types do not qualify for a stimulus package for student loans, borrowers can benefit if they consolidate. It is possible to consolidate existing loans to make them Direct Consolidated loans. In this case, the borrowers can freeze the payments and enjoy 0% interest during the forbearance period.
However, debtors should keep in mind that they can lose the points earned for Income-Based Repayment or Public Service Loan Forgiveness programs. Usually, in such forgiveness opportunities, payments made after consolidation are considered. All payments before consolidation are left out in counting the number of qualifying payments.
Implications for Defaulted Loans
Some borrowers apply to student loan rehabilitation to get rid of default status on their debt. After making payments for nine months, borrowers achieve this goal. These payments should be consecutive, which is why debtors were worried that the forbearance due to COVID-19 would be a barrier. On the contrary, the forbearance period even supports the rehabilitation process. $0 payments during the non-collection period count for the rehabilitation requirements.
Collections through Different Means
When borrowers cannot repay the debt, the lender can get the payment through wage garnishments or tax refunds. Debtors should be aware that the non-collection period also involves different repayment ways. In other words, the collection through salary or tax refunds is also stopped.
How does Employer Contribution Work?
The stimulus package for student loans involves tax deductions for employers contributing to an employee’s student loan repayment plans. In March 2020, such a stimulus was granted till January 2021 (which is again prolonged for five years).
The advantage of this contribution is still questionable. Some experts claim that this element is more for employers’ favor rather than employees. The contribution to student loans can reduce employees’ mobility and pressure them to stay with the employer. Besides, employers might use student loan repayment contributions as an excuse for higher wages or other benefits.
January 2021- Forbearance Extension
In his first days of presidency, Joe Biden requested the Education Department to extend the debt collection process till the end of September. Before the relief was announced, many people were worried that they would be obliged to repay the debt starting January 2021.
More optimistic experts thought that Biden would be able to extend the collection suspension period till March-end. Luckily, the government prolonged the debt non-collection period, even for a longer period- 8 months. Currently, borrowers are not obliged to make debt payments till September end.
Like previous forbearance periods, people will not be obliged to repay the debt for eight months. During this 8-month suspension period, no interest will accrue. Suspension on collection also applies to wage garnishments and tax refunds. The difference is that this time, the extension is much longer, and there is a reason.
We always advise the borrowers to use the forbearance periods as an opportunity to think about debt resolution tools and develop a plan. However, this period is not only beneficial for debtors. Sure, the government also needs to plan how to resume the debt collection.
When people deal with natural emergencies, the loan default rates spike as soon as debt collection starts. If the lenders start to collect payments in September, there is a high chance that many borrowers will be unable to pay. Hence, default rates can increase. Therefore, such a long suspension period allows the officials to invest time developing sound plans for student loan borrowers.
Federal debt forgiveness programs exist to bring up to 100% debt reduction. Usually, forgiveness is granted in return for service. For example, the Public Service Loan Forgiveness allows full debt cancellation after serving a minimum of 10 years and making 120 qualifying payments. In turn, Teacher Loan Forgiveness reduces the debt by $5,000 or $17,500 in return for five years of service.
There is another program called Borrower’s Defense to Repayment, which does not require mandatory service. This program is accessible to borrowers if they face misconduct by the school. If a school lies about true education costs, job replacement rates, etc., the debtor can oppose the debt repayment. In this case, the Education Department reviews the case and grants some discharge percentage.
Like forgiveness programs, discharge options can bring up 100% debt cancellation. However, eligibility to discharge is out of the control of the borrower. For example, debtors can make 120 payments while choosing to work in a qualifying workplace for the PSLF program.
Meanwhile, borrowers cannot progress toward loan discharge due to death, disability, bankruptcy, closed school, false certification, etc. These conditions either happen or not, and if they happen, the debt is forgiven.
Repayment plans, especially Income-Driven repayment, serve multiple functions for federal borrowers. First, borrowers get simpler terms to repay the debt effectively. As the monthly payment amount is based on the income level, debtors do not face many difficulties affording it. Besides, after some payment period, borrowers get a chance to eliminate the rest of the debt.