Update: On August 21, 2020, the U.S. Department of Education issued a press release stating that it will fully implement the president's executive memorandum on student loans (discussed below). The press release answered many of the questions that were left open after the memo came out. And, on December 4, 2020, U.S. Secretary of Education Betsy DeVos announced that the federal student loan payment suspension and interest waiver will continue through January 31, 2021.
On his first day in office, President Joe Biden issued 17 executive orders, presidential memoranda, and agency directives. One of those directives instructed the U.S. Department of Education to extend the existing payment suspension and interest waiver for most federal student loans through at least September 30, 2021. In response, the Education Department announced that it would continue the pause on federal student loan payments and collection actions at President Biden's request and keep borrowers' interest rate at 0%.
On August 8, 2020, President Donald Trump issued a memorandum, which is similar to an executive order, to U.S. Secretary of Education Betsy DeVos, directing the Department of Education to extend several student loan benefits contained in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Specifically, the memorandum orders a suspension of federal student loan payments through December 31, 2020, and extends the interest waiver through this date. But the memorandum is vague and leaves many questions unanswered. Trump's directive also doesn't include any provision for student loan forgiveness.
The CARES Act suspended payments on federal student loans held by the U.S. Department of Education for six months, through September 30, 2020. President Trump's memorandum extends that date through December 31, 2020. The CARES Act also set student loan interest on qualifying federal student loans at 0%. Likewise, the memorandum extends this interest waiver through December 31, 2020.
Under the CARES Act, the payment suspension and interest reduction were automatic; you didn't have to request them. The president's memorandum, however, doesn't specify whether the borrower has to ask for the suspension or interest waiver. Once the Department of Education issues official guidance for implementing the memorandum, we'll know more.
The memorandum doesn't specify what student loans are covered. The CARES Act applies to Direct Loans and FFEL loans, but only FFEL loans that the U.S. Department of Education owns, not FFELs held by other entities. Borrowers with private loans and Perkins Loans held by entities other than the Department of Education also didn't get relief under the CARES Act. The memorandum states that it is an "extension" of existing CARES protections—not an expansion—so the same limitations on covered loans likely apply.
The president's memorandum doesn't explain what happens to borrowers in default on their student loans. It doesn't mention a prohibition on student loan debt collection, garnishments, or tax refund offsets, or say whether the suspended payments will count toward loan forgiveness, like public service loan forgiveness, or loan rehabilitation—all of which were included as part of the CARES Act. Again, official guidance from the Education Department will hopefully address these issues.
Under the CARES Act, a loan servicer can't report a suspended student loan as delinquent to the credit reporting bureaus. The Act requires the servicer to treat suspended payments as if they were regular payments that the borrower made. Whether this requirement applies to the extended payment suspension is unclear at this point. Again, official guidance from the Department of Education will likely provide more information.
At any rate, you should routinely review your reports during the COVID-19 national emergency to make sure they're accurate. Equifax, Experian, and TransUnion are offering free weekly online credit reports through April 2021, so consumers can manage credit during the pandemic. Go to annualcreditreport.com to get your free reports.
The presidential memorandum also says that borrowers who want to continue making student loan payments are allowed to do so, notwithstanding the suspension. Many borrowers have continued to pay their student loans, even after the initial suspension and 0% interest rate first went into effect. By continuing to pay your student loan bills, you can eliminate your debt sooner. (To learn more about dealing with federal student loans while the COVID-19 crisis is ongoing, see How to Manage Your Federal Student Loans During the Coronavirus Outbreak.)
Effective date: August 8, 2020