UPDATED August 11, 2021
Part of our COVID-19 Consumer Protection Guide series.
The U.S. Department of Education has made big changes for federal student loan borrowers in the last two months in response to the economic consequences of the novel coronavirus pandemic. The rollout of these new rules has been rocky, to say the least, and many borrowers still have questions about the status of their loans.
FAQs for Student Loan Borrowers
Q. What are the changes I should be aware of?
A. From March 13, 2020 through January 31, 2022, most federal student loans have reset to 0% interest, suspended payments, and halted collections. However, these measures do not apply to private or institutional loans.
First, interest will not accrue during this time on most federal student loans, including all federal Direct, FFEL, and Perkins loans held by the federal government. (The interest break does not apply to commercially held FFEL loans or institutionally held Perkins loans.) The change is automatic. Of course, some borrowers may choose to continue to make payments to reduce their loan balance. (PSLF applicants, read on before making payments!)
Second, all required payments on federally held Direct, FFEL, and Perkins loans have been temporarily suspended. The change is automatic and retroactive to March 13, 2020. Loan servicers had until April 10, 2020 to update your account to reflect these changes. If you made a payment before your loan servicer was able to implement the CARES Act changes, you can request a refund.
Third, the Department has halted collections on defaulted federal student loans.
The Department extended these benefits through January 31, 2022.
California also passed AB 376 in September 2020, which created a Student Borrower Bill of Rights and allows the newly-renamed Department of Financial Protection and Innovation to regulate an expanded group of student loan servicers.
Q. How do I find out what kind of loans I have?
A. Visit studentaid.gov and log in to your account to figure out what kinds of loans you have. To see your private loans (and all your credit obligations), you can get a free credit report from each of the major credit reporting agencies (TransUnion, Equifax, and Experian) from annualcreditreport.com.
Q. I’m enrolled in the Public Service Loan Forgiveness program. Do I have to make payments to continue to qualify?
A. No, the suspended payments count towards PSLF.
The text of the CARES Act makes clear that the suspended payments count as qualifying payments towards Public Service Loan Forgiveness. You owe $0 during these months and get credit toward IDR and/or PSLF. Since no interest is accruing, your balance should not change during this time.
Q. What if I want to make payments while interest is suspended?
A. You can, but be careful if you are doing PSLF.
Interest for all federal Direct, FFEL, and Perkins loans is 0% until September 31, 2021. So, for those who are on a standard 10-year or extended repayment plan in which you are paying off student loans yourself (and NOT on an Income-Driven Repayment plan), this might be a good time to make some payments to chip away at the principal balance of your loans.
However, if you are on an Income-Driven Repayment plan, and your balance is growing over time, there may not be much point to paying, especially if you are doing PSLF (see below). The payments you make in an IDR plan depend on your income, not solely on your balance, so this might be a time to save some money since you owe $0/month and no interest is accruing.
* Warning to PSLF applicants *
If you are planning to apply for PSLF, you must make “qualifying payments.” “Qualifying payments” mean the exact amount you owe, which right now is $0. If you pay more, you will be put into “paid ahead status,” and the payment will not be a qualifying payment. You may be able to request that your loan servicer not put you into a “paid ahead status” if you do wish to make extra payments. However, be sure to reach out to your loan servicer before you make an extra payment.
Q. What if I have private student loans or commercially-owned Federal Family Education Loans?
A. In California, most major private student loan servicers have made an agreement with the state to provide borrowers several relief options.
While the CARES Act helped many student loan borrowers, many others were left unprotected. So, the California Department of Financial Protection and Innovation negotiated relief for students with commercially owned Federal Family Education Loans or privately held student loans who are struggling to make payments due to the COVID-19 pandemic. If you are in this camp, you should immediately contact your student loan servicer to identify options. Here is a list of the 19 major student loan servicers that are participating.
Relief options include:
Providing a minimum of 90 days forbearance
Waiving late payment fees
Ensuring that no borrower is subject to negative credit reporting
Ceasing debt collection lawsuits for 90 days
Helping eligible borrowers enroll in other assistance programs.
Borrowers experiencing difficulties with a student loan servicer are encouraged to contact the DFPI at 1-866-275-2677 or file a complaint online.
Q. Where can I get more help with student loan questions?
A. Students can contact Berkeley Law’s Financial Aid office. For further info, see the resources below.
Many thanks to Suzanne Martindale, Berkeley Law lecturer on Student Loan Law, and Amanda Prasuhn, Associate Director of LRAP, for sharing their expertise.
This guide is intended for informational purposes only and does not provide legal advice.