COVID Student Loan and Repayment Rules Update

On August 8, President Trump signed an executive order that extended some of the rules related to the CARES Act and student loans.  This order directly impacted federal student loan borrowers and those in repayment.

The initial statement only addressed the zero-interest policy and the extension of zero federal student loan payments until 12/31/2020.  It did not offer any additional details on other policies related to loan repayment, which is critical to many borrowers.

With more than 56% of student debt dollars being repaid using the Income-Driven Repayment (IDR) methods, additional details were required.  These additional instructions were published last week.

Income-Driven Repayment Details Now Available

The trend to the IDR methods has been growing over the past few years.  It has received little press yet it has had a significant impact on a borrower’s financial future.  The traditional loan repayment strategies found in a Mortgage or Auto loan are easier to understand since the monthly repayment amount is based on the loan terms such as interest rates and time.

IDR is different since the monthly payment is based on a person’s or couple’s adjusted gross income.  This change is significant because the borrower needs to manage their Adjusted Gross Income and not their student loan terms.

As part of the IDR process, each year the borrower must recertify their income to qualify for an IDR repayment method.  A federal student loan borrower who was using an IDR method received an extension on the recertification and their tax filing date for 2019.  Both were part of the CARES Act that was passed earlier this year.

To qualify for many of the federal student loan forgiveness programs, you need to be using one of the IDR methods.  Therefore, the IDR recertification process is very important.

IDR Recertification Extension to 12/31/2020

With the President’s Executive Order, we received the additional clarification that IDR borrowers need to know.  Their annual recertification will now be extended until 12/31/2020.  All recertification that should have been done during the CARES Act extension will need to be completed by 3/31/2021.  This is a significant change.

There are some good news and bad news with this extension.  Depending on your income and taxes on file, a borrower’s monthly payment could go up since the borrower missed a recertification period, and their new income may be much higher.  You could consider recertifying now to see which income number they will be using for this year’s recertification.  By recertifying, you still benefit from the no payment requirement until 12/31/2020.

The good news is that you did not need to make payment and those months of non-payment will qualify for qualified payment months under both the general federal loan forgiveness and Public Service Loan Forgiveness (PSLF).  This assumes that the other requirements are fulfilled.

Student Loan Executive Order Summary

The federal student loan executive order has extended the benefits of the CARES Act until 12/31/20.  This only helps current federal student loan borrowers that are incurring debt and in repayment.  Additional details in IDR payments were clarified.  PayForED will keep you informed on additional changes and the restart process.  We will be also addressing the refinancing decision that many borrowers will be facing in the coming months as the extension expires.

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