President Donald Trump’s recent decision student loan debt the extension of the relief left borrowers confused.
On August 8, he issued a memorandum ordering an extension of the current 0% interest rate and a payment break for federal student loan borrowers until December 31. It was one of four executive Actions (only one of which was a full-fledged executive order) which Trump signed as the talks collapsed for another congressional stimulus package.
The CARES law, the $ 2.2 trillion stimulus package passed in March, provided student loan relief until September 30. Under the CARES Act, payments, interest and collections on student loans held by the government were suspended.
Trump’s presidential memorandum is similar, but “the devil is in the details,” Kyra Taylor, lawyer at National Center for Consumer Law, Business Insider said. This move is potentially good for some borrowers, she said, but it does not extend all the reliefs in the CARES Act and leaves many questions unanswered.
“Currently, many Americans remain unemployed due to the COVID-19 pandemic, and many more have accepted lower wages and reduced hours as states and communities continue to impose social distancing measures “Trump wrote in the memo. “It is therefore appropriate to prolong this policy until the economy has stabilized, schools have reopened and the crisis caused by the COVID-19 pandemic has subsided. “
This is what we know
- The memorandum leaves out the relief for 9 million student loan borrowers, Seth Frotman, Executive Director of Protection Center for Student Borrowers (SBPC) and former student loan regulator, Business Insider told Business Insider.
- If you are a borrower with a federal student loan owned by the federal government, you won’t need to make any payments, and you won’t earn interest until the extension expires.
- If you are a borrower with a private student loan, federal commercial student loan, or federal Perkins loan, you will need to make payments as usual in accordance with SBPC. (The CARES law also retained borrower relief with loans not held by the Ministry of Education.)
- Extension will start on October 1. All borrowers covered by the CARES Act can continue with suspended payments until September 30.
Here’s what we don’t know
- Will this extension relief be automatic?
Taylor said it is not clear whether this relief will be opt-in or opt-out.
- What impact will this have on the protections of defaulting borrowers?
The CARES Act suspended payments for defaulting borrowers, but the memorandum does not refer to this suspension.
- What impact will this have on borrowers facing financial difficulties?
Borrowers facing financial difficulties (such as prolonged unemployment) can withhold loan payments with no accrued interest for up to three years, Taylor explains in a blog post. But the memorandum does not specify whether borrowers who have reached the three-year limit will receive extended relief or whether this emergency postponement will be counted towards the three-year limit.
- Will this emergency deferral count as eligible time for borrowers under the Public Service Loan Forgiveness Plan (PSLF)?
Under the CARES Act, months of non-payment for PSLF borrowers counted toward the 120 monthly payment requirement for the cancellation of utility loans. The memorandum does not specify whether this will continue.
- How will this be implemented?
When Business Insider asked the Department of Education how the extension will be implemented, a spokesperson said: “We are awaiting information so that we can share it with you.”
What it all means
Many student loan advocates criticized the memorandum for being vague and not making enough of a difference in the long run. Rebecca Harrington of Business Insider US reported that Trump’s executive action, along with the three other executive actions he has taken, might not do much because they will be so difficult to implement.
Lawyer Adam S. Minsky wrote that this action rejected Democrats’ proposal for a 12-month extension of the student loan provisions of the CARES Act, as well as expanded provisions for borrowers excluded from this relief and loan cancellation for borrowers in financial difficulty.
Better action, Taylor said, would have been blanket debt cancellation. “At the bare minimum, [we] should have extended all the relief that the CARES Act offered to all federal student loan borrowers, ”she said.
Frotman of the SBPC also said the move was not enough. “The president’s action on student debt falls short of what Americans need to stay afloat during this unprecedented health and economic crisis,” he said. “The suspension of payments will only give a boost to borrowers facing job losses and financial upheaval, including millions of people in distress before the pandemic.”
Taylor advises borrowers to keep an eye on the DOE website to see if they should opt for relief and to verify that their interest will not accrue during the suspension period.
“There is too much we don’t know,” Taylor said. “So people can’t assume what’s next in terms of student loans. ”