Updated April 3, 2020
On March 13, the Trump Administration announced the automatic suspension of federal student loan interest accrual in light of the COVID-19 outbreak. Following the announcement, the President on March 27 signed stimulus legislation into law that suspends federal student loan repayment and interest accrual for six months and includes other supports for higher education.
The U.S. Department of Education (USDE) Office of Financial Student Aid (FSA) has issued some guidance for students, borrowers, and parents.
Here is what you should know:
- Automatic interest suspension. Interest on federal loans is automatically suspended from March 13 through September 30, 2020. USDE guidance indicates that borrowers do not need to take action. Interest rates are temporarily being set to 0% on federal student loans, including defaulted and non-defaulted Direct Loans, defaulted and non-defaulted FFEL Program Loans, and Federal Perkins Loans. The guidance notes that some FFEL and Perkins loans are owned by institutions, and these are not eligible.
- Six-month suspension of federal student loan payments. USDE guidance indicates that payments will automatically stop from March 13 through September 30, 2020. Borrowers do not need to take action.
- Borrowers can still make payments during this time.
- Auto-payments will be suspended; any auto-payment made during the suspension are eligible to be refunded.
- USDE guidance indicates servicers will contact borrowers no later than August to remind them about payments resuming.
- During the suspension, borrowers will receive credit for making payments in order to remain on track for loan forgiveness programs, such as the Public Service Loan Forgiveness (PSLF) Program, so long as they have Direct Loans and are in a qualifying repayment plan.
- Protections for borrowers in default. The new law prohibits wage garnishment and other collection measures for defaulted borrowers during the COVID-19 outbreak.
- Incentive for employers to provide student loan support. The law allows employer contributions to an employee’s educational loans to be considered tax-free. The benefit is capped at $5,250 is available for 2020 only.
- Funding for higher education and emergency student aid. The stimulus also creates a Higher Education Emergency Relief Fund, which provides for funding to be directly provided to institutions based on a formula in order to defray the expenses, including lost revenue and technology costs associated with distance learning. The stimulus requires institutions to dedicate 50% of this funding to emergency financial aid grants for students. While we await additional details, veterinary students may wish to contact their financial aid office to explore the emergency aid opportunity.
USDE FSA will update their COVID-19 resource page as information becomes available.
Veterinarians and veterinary students are encouraged to contact their loan servicers to discuss the impact of these changes to their specific loan portfolio, and to ensure their contact information is up-to-date. If you are not sure who your loan servicer is, please click here to find out.