School’s Out: Proposed Relief for Federal Student Loan Borrowers Impacted by COVID-19

On Friday, March 27, 2020, the President signed into law a stimulus bill designed to provide emergency assistance for those affected by the COVID-19 national emergency (the “CARES Act” or “Act”) that includes certain temporary relief for federal student loan borrowers. The Act largely codifies the Department of Education’s previous announcement regarding temporary relief to federal student loan borrowers impacted by the COVID-19 national emergency and extends the timeline for the temporary relief measures.

The Act provides three primary relief measures to federal student loan borrowers whose loans are held by the Department of Education:

• Payments on federal student loans held by the Department of Education will be suspended through September 30, 2020.
  • Suspended federal student loan payments will be treated as if they were regularly scheduled payments made by a borrower for purposes of reporting to consumer reporting agencies. This is consistent with the CARES Act’s credit reporting protection provisions with respect to the period of time that consumers receive forbearance.
  • Suspended federal student loan payments will be deemed to be qualifying payments for the purpose of any authorized loan forgiveness or rehabilitation program.
• Interest will not accrue on federal student loans held by the Department of Education during the payment suspension period.
• All involuntary loan collections will be suspended through September 30, 2020. This includes wage garnishment, tax refund reductions, administrative offsets of federal benefits, and other involuntary collection activity. The Secretary of Education already directed the Department of Education to refund approximately $1.3 billion in offsets that were in the process of being withheld. Additionally, the Department of Education has ordered collection agencies to cease all collections activities against federal student loan borrowers for a period of at least 60 days, including making collection calls and sending collection letters.

The CARES Act does not require that borrowers demonstrate they have been financially impacted by COVID-19 in order to receive relief. Borrowers who are not suffering financial hardship and continue to make regular monthly payments will have their full payments applied toward principal.

To ensure that borrowers are aware of these measures, the Department of Education must notify relevant borrowers of these changes within 15 days of the Act’s enactment (i.e., by April 11, 2020). Beginning on August 1, 2020, the Department of Education must provide at least six notices to borrowers to notify them of the date on which normal repayment obligations will restart and provide a description of income-driven repayment options available to borrowers who cannot resume normal repayment.

As noted above, relief under the Act and the obligations imposed on the Department of Education only apply to federal student loans that are held by the Department of Education. These provisions do not apply to Federal Family Education (“FFEL”) Program loans held by third parties or Perkins loans held by educational institutions. Similarly, these provisions do not apply to private student loans. However, many holders of private student loans already offer forbearance and repayment plan options to borrowers experiencing financial hardship on a case-by-case basis. States also are starting to act through legislation or executive order to provide financial relief to their residents during the COVID-19 pandemic.

We continue to monitor developments related to COVID-19’s impact on student loans and will report on any additional updates.