Student loan borrowers struggling to make payments as coronavirus cripples parts of the U.S. economy will get a temporary hiatus under President Donald Trump’s $ 2.2 trillion stimulus package enacted Friday.
The CARES (Coronavirus Aid, Relief and Economic Security) law allows student loan borrowers to take a six-month break from paying off their federally-backed student loans.
Until September 30, borrowers will not be penalized for late payment. The CARES Act extends a two-month hiatus President Donald Trump announced for student loan payments last week. The federal stimulus bill will also hand out checks for $ 1,200 to people under certain income limits, increase unemployment benefits and provide relief to small businesses.
The Temporary Interruption of Student Loan Payments includes borrowers who wish to obtain cancellation of their student loan debt through the Public Student Loan Cancellation Program. This program allows borrowers who work in certain public sector or nonprofit jobs to write off their federal student loan debt after making on-time payments for 10 years.
The CARES Act would allow them and other federal student loan borrowers to delay payments without incurring an interest penalty. The interest-free deferral option, if a federal student loan policy qualifies, will automatically apply.
“These people will just have to do what they normally do,” said Travis Hornsby, founder of Student Loan Planner, a student loan repayment advisory group based in Saint Louis, Missouri. “Since many people unfortunately ignore their payment plans, they just keep ignoring it but won’t have to pay interest. [over the six month period]. “
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Borrowers are not reimbursed for any part of the burden of their student debt. Some were hoping Democratic lawmakers would be able to pass a provision to write off $ 10,000 in student debt per borrower during the national coronavirus emergency.
An important caveat regarding the bill: Private student loan borrowers receive no relief from this bill, Hornsby said. The six-month break only applies to people on federally guaranteed loans. “It’s really unfortunate for people who have converted their federal loan into a private loan to pay off their debt,” he added. “the carpet tore off under them.”
This includes about $ 6 million in federal family education loan program loans that are held by commercial lenders, according to the Student Loan Planner’s. calculations based on data from the Ministry of Education.
Allowing borrowers to delay loan repayments “is like a band-aid on a deep wound, the underlying situation remains unresolved,” said Andrew Housser, co-CEO of Freedom Financial Network, an online debt management company based in San Mateo, California.
Right now, Americans collectively owe $ 1.5 trillion in outstanding student debt, more than total credit card debt as well as total auto debt, according to the New York Federal Reserve. 11.1% of total student debt is over 90 days past due.
“Helping people ease the cycle of debt, especially those with crushing student debt, will help alleviate some of the pain of this sudden crisis and, most importantly, help people bounce back once we have the crisis. under control, ”Housser said. “We don’t know when it will end, but we do know that when it does, we need people to get back to work and start spending again in order to revitalize the economy.”
He added: “There is a lot more for student borrowers to do after this crisis is over, but it will definitely help.”
In addition to student loan debt relief, the Senate agreed to create a $ 30.75 billion education stabilization fund, of which about 46% would go to colleges. $ 13 billion would go to primary and secondary school. Additionally, the fund would provide grants to “local education agencies which the state education agency said have been most affected by the coronavirus,” the bill says.