WASHINGTON – With President Donald Trump’s executive order suspending federal student loan payments through the end of the year creating confusion among borrowers, the U.S. Education Department on Friday, Aug. 21, 2020, fleshed out the terms and effectively extended the moratorium as written by Congress earlier in the year.
That means that all borrowers with student loans held by the federal agency will have their payments automatically suspended until Dec. 31 without penalty or accruing interest. Each month until then would still count toward loan forgiveness for borrowers in public service jobs. It would also count toward student loan rehabilitation, a federal program that erases a default from a person’s credit report after nine consecutive payments.
Those are the same terms Congress agreed upon in the last stimulus package. Lawmakers suspended education debt payments through Sept. 30 after the Trump administration in March gave borrowers the option of postponing payments for at least 60 days as the pandemic leveled the economy.
As the deadline approached and Congress was unable to reach an agreement on an extension, Trump stepped in earlier in the month. But the president’s order created more questions than gave answers about how the suspension would be applied. And by giving borrowers the option of halting their payments, rather than making it automatic, and ignoring the treatment of loans in default, consumer advocates worried that many would fall through the cracks.
On Friday, the department addressed many of those concerns, though others remain. Chief among them is that the order still excludes more than 7 million borrowers whose federal loans are held by private companies or universities.
For borrowers with loans in the department’s portfolio, they can continue making payments on their debt to pay it off faster, though they are under no obligation to do so. Collections on defaulted, federally held loans are still halted, and any borrower with defaulted federal loans whose wages are being garnished will receive a refund.
“Thanks to President Trump’s leadership, students can continue their education and borrowers can enjoy relief from some of the financial stress many may be facing due to the coronavirus pandemic,” Education Secretary Betsy DeVos said in a statement Friday. “We want everyone to be focused on a safe return to full-time learning.”
The department is working with its student loan servicing companies to get the word out about the terms of the extension.
The Education Department has had trouble executing some elements of the student loan moratorium. Tens of thousands of borrowers were still having their paychecks shorted to repay past-due student loans months after the order went into effect. The department blamed the delay on employers failing to take action to end involuntary collection, despite calls and emails from the agency.
But people familiar with the matter, who were not authorized to speak publicly, previously told The Washington Post that the Education Department failed to promptly mail out notices to employers. And they questioned why the agency failed to deploy all methods of communication from the outset.