Section 3513, one of the many provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), deals with the processing of most federal student loans.
The CARES Act is suspending all loan payments until September 30, 2020 for certain types of student loans made or held by the United States Department of Education:
- Federal Direct Stafford Loans,
- Federal Direct Parent PLUS loans,
- Federal Direct Grad PLUS Loans and
- Federal direct consolidation loans.
The suspension of payments does not apply to:
- private student loans,
- Perkins loans held by the institution a student attended and
- Federal Family Education Loan Program loans owned by commercial lenders.
Under the CARES Act, payments made between March 2020 and 30 will be required (i.e. a 10-year PSLF loan will still expire in 10 years, it will not be extended to 10 years and 6 months). For credit reporting purposes, the CARES Act states that all suspended payments will be treated as if they had been made. In addition, all wage garnishments, garnishments of tax refunds and cuts in federal benefits are also suspended until September 30, 2020.
For student loans subject to the CARES Act, the payment suspension will be automatic until September 30, 2020, which is the date set by the Act. During this period, interest on covered student loans will not accrue. According to a March 31, 2020 press release, the Department of Education had already set interest rates on covered student loans to 0 percent, suspended payments, and stopped wage garnishments. These items have been automatically applied to accounts and borrowers are not required to take positive action to receive this relief.
For private student loans, most service providers offer temporary relief to borrowers. Relief options vary by servicer, and it is the borrower’s responsibility to specifically contact the servicer to discuss relief options such as deferral or forbearance. Some service providers also enacted a moratorium on filing lawsuits against defaulting borrowers at this time.
In addition to suspending student loan payments, the Department of Education has taken various other education-related actions under the guidelines of the CARES Act. In early April, the Department of Education disbursed $6 billion to colleges and universities to allow those institutions to provide students with cash grants related to their education and the disruption to their education caused by the COVID-19 outbreak. These grants are intended to be used for expenses incurred by students related to the outbreak. Each educational institution has discretion to determine which students receive scholarships. In addition, the Department of Education provided state governments with $3 billion to support continuing education for all students. State governors are responsible for determining how best to allocate funds to meet the educational needs of students in their respective states at all levels and in both the public and private sectors (i.e., charter schools, private schools, and specialty schools). .