Student Loans

COVID-19 and Student Loans

CARES Act § 3513 provides SOME relief for those with student loans. But there are limitations! The first step is to determine what type of student loan you have. Information about each type of student loan is provided below, with information about the relief available under the CARES Act. If you don’t know what type of student loan you have, there is information below to help you figure it out. At least one estimate is that at least 9 million student loan borrowers are not covered by the CARES Act. If your loan is not covered, general student loan information is also provided.

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How do I determine my Loan Type?

Let’s determine what kind of student loan you have. Private versus Federal is easy. You likely already know that part. But do you know if your Federal loan is a Direct Loan or an FFEL? Yes? Excellent. No? That’s ok, I’m going to tell you how to figure it out.

Note: FFEL and FFELP are the same loan type. They are acronyms for Federal Family Education Loan Program. FFEL simply ignores the “program” moniker. You may see one or the other, or both when following the steps below.

  1. Go to studentaid.gov. You can click it now. It will open in a separate window so you can follow these directions as you go.
  2. If you’ve never been here before, you can create an account by clicking “Create Account”. If you’re in default and nervous that this will wake the beast, no, it doesn’t work that way.
  3. Once logged in, you’ll see the Student Aid Dashboard. You’ll see a chart of your aid – loans and grants, as well as servicer information on the righthand side.
  4. On the chart of loans and grants, you’ll see “View Details” on the right. Click that.
  5. Scroll down until you see “Loan Breakdown”. You’ll see your loans sorted by servicer. Loans with a balance are listed first. Loans that have been paid off are listed further down.
  6. Click on “View Loan Details” under any servicer showing a loan balance. Again, you’ll see a list of loans serviced by this servicer, with active loans listed first.
  7. Click on “View Loan Details” for any loan with a balance. The first thing you’ll see at the top is “Loan Type”. You’re looking for one of the following: FFEL/FFELP, Direct Loan/DL, or Perkins. We don’t care if they are Stafford, PLUS, or Consolidations at this point. Also, if you show a different loan type than the three mentioned, feel free to drop me an e-mail at jcohen@thestudentloanlawyer.com and I’ll clarify where it fits.
  8. If you have multiple active loans with this servicer, scroll down to “Next Loan” to view the next loan. Do this until you have checked all active loans with this servicer.
  9. If you have active loans with multiple servicers (step 5), go back to the list of servicers and do steps six through nine again. To go back to the list of servicers, click “Aid Summary” at the top of the screen in small blue type.
  10. Once you have all your loan types (FFEL, DL, or Perkins), click on the loan type you have to find out how the stimulus will affect you. If you have multiple loans, hit the back button after you read about the first type to return here and click your other loan types.

Do you have a loan that you couldn’t find on studentaid.gov? That’s a good indicator that it’s a private loan. The student aid website is for Federal loans only. Do you have a co-signer on the loan? That’s also a good indicator that it’s a private loan.

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What if I have a Direct Loan?

A Direct Loan means the money was borrowed Directly from the US Education Department (“USED”). No middleman. The loan will always be held by USED. When in good standing, a servicer helps USED collect by sending bills and offer affordable payment plans and/or forbearance and deferments. When in default, a debt collector helps USED collect through various communications and also helps with wage garnishments and rehabilitation.

If you have one of these loans, congratulations! Your student loans are included in the CARES Act and you will receive assistance. Unless indicated otherwise, this relief is automatic, you do not need to do anything to obtain the benefit. Here’s how:

  • Interest is reduced to 0%. This means that your loan is not accruing interest during the next six months.

The rest depends on the status of your loan – good standing or default.

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Good Standing / Delinquent

  • Direct Loans are automatically placed into a 6-month forbearance, no payments through September 30, 2020.
  • If you’re working towards Public Service Loan Forgiveness (“PSLF”), these 6 months count towards your 120 months – no payment necessary!
  • If you’re working towards Income-Driven Repayment (“IDR”) forgiveness, these 6 months count – no payment necessary!

Default

  • All collection activity stops.
  • Wage garnishments stop (you must contact your employer to make them stop).
  • Social Security offsets stop – as of March 13, 2020.
  • Tax refund offset stops – if it was in process after March 13, 2020, you’ll get your refund. If your refund was taken prior to this date, you may not get it back.
  • Rehabilitation payments no longer required. We are researching to find out if the 6 months of no payments will count and will update as soon as this is answered.
  • No debt collectors calling or sending letters to collect.

If your loan is in default, now is an EXCELLENT time to fix your loan and get it back to good standing. Life will eventually return to normal. Here’s your chance to have your loan start normally too!

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What if I have an FFEL Loan?

An FFEL (“Federal Family Education Loan”) loan is a federal student loan that was originated (funded) by an entity other than the US Education Department (“USED”). It could be a bank or a credit union (Sallie Mae, Chase, Wells Fargo, etc.), or even a guarantee agency (VSAC, Great Lakes, MOHELA, etc.) The loan is guaranteed (insured) by USED, which is what makes it a Federal student loan.

If you have a FFEL loan, the relief that you obtain under the CARES Act depends on who owns your loan. If your loan is in good standing, it is unlikely that the stimulus will help you. If your loan is in default, the stimulus may help you, depending on who owns the loan. If the loan is held by the US Education Department, you are lucky and eligible for help under the stimulus (the CARES Act). If it is not held by the US Education Department, you get no protection. See below for more information.

When the loan is in good standing, you will receive bills from the lender or a servicer working for the lender. If you default, the loan is transferred to a guarantee agency (unless it was originated by the agency, then they keep it). The guarantee agency has the same powers as USED to collect – wage garnishment, social security offset, tax refund intercept, and lawsuits. The guarantee agency also has the option to file a claim and turn your loan over to USED. This is an important issue discussed in a bit.

Good Standing

If your FFEL loan is in good standing, you get no benefits from the stimulus. If you’re having difficulty maintaining your payments, you have three choices:

  • Use a forbearance or deferment.
  • Enroll in Income Based Repayment (“IBR”), or if you’re already on IBR, request a recalculation based on decreased earnings.
  • Consolidate to Direct Loans and then get the benefits of the stimulus. NOTE, if you do this and you’re on IBR, you will lose any time you’ve accumulated towards IBR forgiveness. Think carefully.

Default

If your FFEL loan is in default, there may be some stimulus benefit. Remember the part above about guarantee agencies turning defaulted loans over to USED? That is going to determine if you get a benefit. You need to verify who is holding the loan. If you’re not sure, go to studentaid.gov to look at your FFEL loan. (Directions here). Does it say USED or DRG (“Default Resolution Group”)? If so, you get a benefit. If not, you get no protections.

FFEL not with USED

Since you get no protection, you should consider getting this loan out of default as soon as you can. You can do that through consolidation or rehabilitation.

FFEL with USED

You got lucky! FFEL Loans held by USED get the following protections through the stimulus:

  • Interest rate reduced to 0%.
  • All collection activity stops.
  • Wage garnishments stop (you must contact your employer to make them stop).
  • Social Security offsets stop – as of March 13, 2020.
  • Tax refund offset stops – if it was in process after March 13, 2020, you’ll get your refund. If your refund was taken prior to this date, sorry, you may not get it back.
  • Rehabilitation payments no longer required.
  • If you’re working towards Public Service Loan Forgiveness (“PSLF”), these 6 months count towards your 120 months – no payment necessary!
  • If you’re working towards Income-Driven Repayment (“IDR”) forgiveness, these 6 months count – no payment necessary!
  • No debt collectors calling or sending letters to collect.

Now is an EXCELLENT time to fix your defaulted loan and get it back to good standing. Life will eventually return to normal. Here’s your chance to have your loan start normally too!

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What if I have a Perkins Loan?

Unfortunately, the stimulus package does not offer any protections for MOST Perkins loans. If your Perkins is one of the handful that have been turned over to USED, you are protected by the stimulus package. Interest is reduced to 0% and no payments are due for the next 6 months. If it’s in default, all collection activity stops. But again, there is only a small percentage of Perkins loans held by USED. Contact your school to verify if they still hold your loan.

A Perkins loan is money given by your school. It is considered a Federal student loan because the money was given to the school by the US Education Department (“USED”). The school lends the money, owns the loan, may hire a servicer to collect when the loan is in good standing and may hire a debt collector if the loan defaults. The school can also sue defaulted borrowers. Schools that have too many defaulted Perkins could lose the program, at which point, all Perkins loans are turned over to USED.

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What if I have a Private Student Loan?

Unfortunately, the stimulus package does nothing for private student loans. While some banks are offering extra forbearances and/or waving late fees, it is completely discretionary. For more information, contact your lender.

If you need further assistance with your private student loans, it may be wise to contact a student loan lawyer licensed in your State.

A private student loan is a loan originated by any bank, credit union, or even a guarantee agency. It is NOT insured by the US Education Department (“USED”). And of course, it is not originated by USED. It’s no different than any other loan you would get from a bank, with one major difference – it is not necessarily dischargeable in bankruptcy. The promissory note will often state it is a “student loan” to be used for educational expenses, which includes tuition and living expenses. Many contain a statement that it is not dischargeable in bankruptcy. Often a co-signer is required because these loans are underwritten based on credit criteria. Federal loans rarely require credit.

Private loans do not offer flexible repayment plans based on income. They do often allow two or three years of forbearance.

Private loans are subject to federal laws like the Truth in Lending Act and state laws like creditor collection acts. Most importantly, the State Statute of Limitations applies (the time limit to file a lawsuit to enforce the promissory note if defaulted).

Further, just because the promissory note references not being dischargeable in bankruptcy, doesn’t mean that’s always true. This is only something to explore if you’re planning to file bankruptcy for other reasons. Filing just to deal with a student loan is not always the best course of action.

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If I receive a cash payment under the CARES Act, can it be seized to pay my student loan debt?

No. The CARES Act provides for payments of $1,200 payments to most Americans with an additional $500 for each child, subject to income limitations. These payments are generally protected from seizure by the United States for debts owed to the United States. See CARES Act § 2201(d).

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What if I receive Social Security benefits?

As of March 26, 2020, the U.S. Department of the Treasury has exempted the Social Security Administration's (SSA) benefit payments from offset. This exemption will remain in effect through September 21, 2020. During this time, SSA benefit payments will not be offset to satisfy delinquent non-tax debts in the Treasury Offset Program. This is largely duplicative of CARES Act student loan provisions for Direct Loan and certain FFEL student borrowers, but has implications for millions of other student loan borrowers and others owing government debts, such those owing mortgage deficiency judgments arising from FHA loans.

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Other resources

Department of Education Press Release (March 20, 2020): All borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days. In addition, each of these borrowers will have the option to suspend their payments for at least two months to allow them greater flexibility during the national emergency. This will allow borrowers to temporarily stop their payments without worrying about accruing interest.

Department of Education, Coronavirus and Forbearance Info for Students, Borrowers, and Parents: includes more detail on the suspension of interest accrual and loan payments, with additional Q & A on other topics relevant to students in school, student loan borrowers, and their parents.

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