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Note: This report has been updated to reflect the House’s passage of the rescue bill.
Congress approves six-month interest-free deferment for all
The Senate and House of Representatives have passed an updated coronavirus economic rescue bill — on Wednesday and Friday, respectively — with measures including a half-year pause on all federal student loan repayments. The $2 trillion emergency relief package will now head to the White House for the president’s signature.
The legislation provides the following relief for student loan borrowers:
- Student loan deferment (a pause to repayment) without interest or penalties for six months, lasting through September 30, 2020.
- Zero interest on federal student loans through the end of September (after temporarily waiving interest earlier).
- Suspension of wage garnishment, tax refund offset or other collection attempts on defaulted student loans (extending a current two-month halt).
- Allowing borrowers to count this six-month period of forbearance as part of any loan forgiveness you’re working toward, including Public Service Loan Forgiveness, according to Forbes.
- A tax incentive for companies to contribute tax-free to employees’ student loan repayment. CBS notes that this program is temporary and would need to be renewed after Jan. 1, 2021 to continue next year.
How it affects YOU: Under the new emergency measures, you will be able to pause payments on your federal student loans, with no interest accruing, for the next six months. Note that this deferment doesn’t appear to be automatic, so you may need to contact your loan servicer to receive the benefit.
This applies to all federal student loans held by the Education Department, including Direct loans, FFELs and Perkins loans. However, in the case of FFEL and Perkins loans, your debt might have transferred to a party other than the government — your school for instance. It’s not immediately clear what the remedy would be, but you might be able to swap such loans for a direct consolidation loan, which would likely be eligible.
And as mentioned above, you’ll still get credit toward federal loan forgiveness even if you take advantage of the deferment.
Also, note that you can continue to pay off your federal student loans during this time to keep chipping away at your balance if you have the means to do so.
Since private student loans are not included in this legislation, you’ll need to reach out to your lender or loan servicer directly if you need relief. If you’ve refinanced your student loans, find out what leading refinancing lenders are doing to help their customers here — you might even consider refinancing those loans a second time to lock in the historically low interest rates currently available.
Also in the news…
- The coronavirus relief package also includes a provision that Pell Grant recipients won’t need to return their grant funds if their school closes due to the crisis, according to Inside Higher Ed. The disrupted term won’t count toward borrowers’ Pell Grant lifetime limits, nor will it impact their fulfillment of the satisfactory academic progress requirement.
- The legislation includes $14 billion for higher education institutions, with the majority of the money going to schools that enroll Pell Grant-eligible students. The remaining 10% is allocated for Historically Black Colleges and Universities, the Inside Higher Ed report said. Medical colleges, furthermore, could receive access to a $100 billion emergency fund, much of which could go toward teaching hospitals.
- While some lawmakers had pushed for the government to forgive $10,000 or more worth of student loans per borrower, this was not included in the final package, according to Inside Higher Ed and others.
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