On March 27th, 2020, the President of the United States signed the CARES Act into law in an effort to provide federal student loan borrowers with temporary relief. We at Key 2 Debt Free want to ensure that our clients understand what this means for them as well as the rights they have as borrowers.
One of the components of the CARES Act (the component that we will be covering) is the COVID-19 Forbearance for Students, Borrowers and Parents. In this article, we will be covering a few of the most commonly asked questions regarding the COVID-19 Forbearance.
First, a forbearance allows the borrower to temporarily stop making payments on their student loans. Normally, while a borrower is in forbearance, interest will continue to accrue and be added to the principal balance at the end of the forbearance term. However, the Department of Education has promised that interest will be set at 0% on certain federal student loans until September, 30th 2020. Here is a list of loans that qualify for the 0% interest:
-
Defaulted and non-defaulted Direct Loans
-
Defaulted and non-defaulted FFEL program loans
-
Federal Perkins Loans
If you have federal loans that fall into a different category, don’t fret. Most federal loans can be consolidated into Direct Loans and will then qualify for the 0% interest rate. If your federal loans DO qualify for the zero percent, there is nothing that you have to do. Your loan servicer will automatically enroll you into the COVID-19 forbearance at 0% interest.
Another commonly asked question is, “If my loans are currently in an Income Driven Repayment plan will the suspended payments count toward my forgiveness”? Being enrolled in an Income Driven Repayment Plan myself, this was one of the first questions I had. After talking to 3 different Federal Loan Servicers and 10 different customer service representatives, I finally got my answer. And that answer is a big, fat, resounding YES! Anyone who is in an IDR plan will be able to take advantage of the COVID-19 forbearance while continuing to count time towards loan forgiveness.
“But what about Public Service Loan Forgiveness? Will the suspended payments count towards my plan”? For those of you in Public Service Loan Forgiveness, or PSLF, as long as you have a direct loan(s), were on a qualifying repayment plan prior to the suspension, and work full-time for a qualifying employer during the suspension, then the Department of Education promises that you will receive credit toward PSLF.
“On March 25th, 2020 the Department of Education announced that my federal tax refund would not be withheld to repay my defaulted Federal Student Loan debt. My refund has already been taken. Will I get it back?” The answer is Yes, but only if your federal tax refund was in the process of being withheld—on or after March 13th, 2020, and before September 30th,2020—for the repayment of a defaulted Student Loan. (If your wages are being garnished, this also applies to you).