Student Loan Forgiveness

The CARES Act suspended student loan payments and interest for three months and authorized the Secretary of Education to extend the suspension for an additional three months. That extension ends on September 30, 2020. On August 8, 2020, President Trump issued the Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic (the “Memorandum”) to the Secretary of Education in order to continue the freeze on student loan payments and interest authorized by the CARES Act through December 31, 2020.

However, for those in the Public Service Loan Forgiveness Program (PSLFP) this extension may come with a price. Borrowers in PSLP must be in an income-based repayment plan and make one hundred twenty (120) payments towards their loans before the loans can be forgiven. The CARES Act stated the Secretary of Education had to count each month of the suspension as if the borrower had made a payment for the purposes of loan forgiveness. Borrowers have been able to count the six months towards the total payments required for forgiveness.

The Memorandum does not include that language and people are wondering whether or not the additional three months will count toward the forgiveness payments. However, examining the language of the Memorandum suggests that they will not count towards those payments. Instead of extending the same language of the CARES Act, the President based the loan relief on economic hardship deferments authorized by the Higher Education Act of 1965 as amended. If a PSLFP borrower is forced to take an economic hardship deferment, those months do not count towards the one hundred twenty (120) payments.

The deferments under the Memorandum are optional as it states, “[a]ll persons who wish to continue making student loan payments shall be allowed to do so, notwithstanding the deferments… Those in PSLFP can continue to make their payments from October through December. If they want to remain on the same timeline for forgiveness, as of now those borrowers should make payments during those months.

As of the publication date, there are about six weeks before the payment freeze under the CARES Act expires and the Memorandum freeze takes over. There are a number of other questions regarding the Memorandum that require additional guidance from the Administration including loan forgiveness. Congress could also pass an additional stimulus package that extends or modifies the freeze in that period. We will continue to monitor this issue and update this entry as appropriate.

Update:

On Friday August 21, 2020, the Department of Education released additional guidance on President Trump’s Memorandum signed on August 8, 2020. This guidance included an announcement that collections of Federal Student Loans are still halted and that borrowers in the Public Service Loan Forgiveness Program will have the additional months count towards their 120 payments required for forgiveness.

These loan hold programs are just for Federal Student Loans held by the Federal Government. They do not govern Perkins loans, Family Education Loans Program, or private student loans.