Student loans are paused – Some lenders are confused

Student loan payments may be interrupted, but not everything is clear.

Here’s what you need to know – and what it can mean for your student loans.

Student loans

President Donald Trump will extend your payments for federal student loans until December 31, 2020. In a memorandum to U.S. Secretary of Education Betsy DeVos, Trump called for DeVos to extend several benefits of student loans. Although some benefits of students are clear, others are not explicitly mentioned. This has caused some confusion among student loans who are not sure what exactly is included in the memorandum – which may affect their student loan repayment strategy. Here’s what we know – and what we do not.

What we know

Let’s start with what we know.

1. Student loan payments will be suspended

Your federal student loans will be suspended until December 31, 2020, which is three months longer than the current break introduced by Congress under the Cares Act, the $ 2.2 trillion incentive package passed by Congress in March. The break applies only to federal student loans owned by the U.S. Department of Education. This includes direct loans, for example, but does not cover most FFELP or Perkins loans. Although the order does not specifically refer to private student loans, it is expected that private student loans are net included in the sequence, since Congress as Trump’s previous 60-day executive action did not include private student loans in its relief of student loans.

2. The payment break is optional

you can choose or you have to make payments for student loan during the payment break. Hence the payment break optional. If you choose to pause payments, you do not have to make federal student loan payments until January 1, 2021. Why would you make student loan payments if you do not have to? Answer: Pay off your student loans faster. This payment break is temporary, but it does not cancel your student loan debt. You will still earn your student loan balance when the payment break ends. Many lenders who now have extra money want to pay off student loans during this period.

3. Interest will not reach on your student loans

Until December 31, 2020, interest rates will not increase on your federal student loans. Like the pay break, this is the same benefit for student loans as under the Cares Act. Remember, your interest rate will not change permanently. After all, this is a temporary change in interest to 0% during this period. However, your normal interest period will start again from January 1, 2021.

4. Forgiveness of student loan is not included

Trump’s memorandum does not include forgiveness for student loans. This is in line with the Heals Act, which is the $ 1 trillion incentive package proposed by the House of Representatives Republicans, and also does not include forgiveness for student loans. In contrast, House Democrats in the Heroes Act proposed that borrowers who struggle financially would receive $ 10,000 from student loan forgiveness.

5. Education Secretary Betsy DeVos will implement these student loan benefits

Trump urged U.S. Secretary of Education Betsy DeVos to implement these benefits. According to Trump, the Secretary of Education will “act in accordance with applicable law to enforce appropriate exemptions and adjustments to the requirements and conditions of postponement of economic difficulties.” This could give DeVos some leeway to perform this executive action.

What we do not know

Here’s what we do not know. While you can make informed guesses about what has been included or just that the important provisions of the Cares Act will be extended, it is important to read the memorandum. But why? There are several policy initiatives that are not explicitly referenced in the memorandum. These are a few:

1. Will non-payments count for forgiveness of public service?

It memorandum does not explicitly refer to student loan forgiveness. Under the Cares Act, if you did not make payments while student loan payments were paused, any non-payment of federal student loans would ‘count’ up to the 120 required monthly payments for public service forgiveness. For example, if you did not make any payments from March 2020 to September 2020, you would have six months of non-payments. Under the Cares Act, you would still receive “credit” for six payments for the public service forgiveness program, which means you would need 114 more payments to complete the 120-month requirement. It memorandum does not mention it whether lenders seeking public service forgiveness who receive this student loan benefit will receive it.

2. Will the collection of student loans be paused?

It memorandum does not explicitly refer to student loan collection. Trump’s initial 60-day order and the Cares Act halted collection of federal student loan debt. By September 30, 2020, your wages, social security benefits, and tax credits, for example, could not be guaranteed as federal student loan debt. None of these are referred to in the memorandum. Although these benefits may continue through the end of the year, it is not entirely clear.

Next steps

The next step is for DeVos to implement the president’s memorandum. The Department of Education has not announced the specifications of extending these student loan benefits through December 31, 2020. One reasonable assumption is that the student loan benefits in the Cares Act will continue through the end of the year. Another reasonable assumption, however, is that the extension will only apply to a break for student loan payment and no interest income. It is also possible that Congress will approve standalone student loan legislation, as part of a future incentive package related to Covid-19 that could supplement the president’s memorandum. Congress could, for example, pass a student loan proposal by Senator Lamar Alexander (R-TN), who introduced Alexander as part of the Heals Act.

How can you pay off student loans?

Even with these student loan benefits, two things will not change when the temporary benefits expire: your student loan balance en your interest rate. You will have the same student loan balance and interest rate as you had before these student loan benefits. Therefore, it is critical to evaluate your student loan repayment plan now. What is the best way to get started? Start with these four options, all of which have no fees:

Sources: Student loans

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