Breaking Down Recent Federal Policies for Student Loan Borrowers
This article contains breaking news and events related to the current state of politics and the economy. While we try our best to keep our articles as up-to-date as possible, the ongoing effects of COVID-19 are happening in real time and information is subject to change.
Update: Congress passed the CARES Act and President Trump signed it into law on Friday, March 27.
The news continues to be filled with actions taken by the federal government in response to the COVID-19 crisis—most recently the bipartisan rescue package passed by the Senate on Wednesday.
These actions all have the potential to impact your life and your money, so we want to make sure you understand them. Below, we walk through the legislation and executive actions that have been taken that will impact student loan borrowers.
Importantly, many of these policies only apply to federally held student loans, not necessarily to loans issued by or refinanced with private companies such as SoFi, but nevertheless it is critical to know what is being done so you can take advantage of any benefits you might be in line for.
Suspension of Federal Student Loan Payments
Earlier this month, President Trump announced that the U.S. government will be temporarily suspending payments on federal student loans and that the government would be temporarily waiving interest payments for federal borrowers.
We break down the details of this announcement and potential implications here. The COVID-19 rescue bill, described below, further extends and builds on this action.
Stop Wage Garnishment, Collections Actions for Student Loan Borrowers
The Department of Education confirmed that it has, effective immediately and indefinitely, stopped seizing the wages, tax refunds, and Social Security benefits of those in default on their federal student loans—or in other words, from those who have been unable to make payments for over a year.
This executive action will be applied retroactively to March 13, 2020—the day President Trump declared a state of emergency. This action provides relief to the over 9 million federal student loan borrowers who are in default on their payments.
Tax-Free Employee Contributions to Student Loan Debt
The nearly $2 trillion rescue package passed on March 25 by the Senate includes Sec. 2206 : “Exclusion for certain employer payments of student loans.” This means, once enacted into law, employers will be able to make tax-free contributions to help employees pay off student loan debt for the remainder of 2020.
You may recall that late last year, you heard from CEO Anthony Noto about SoFi’s commitment to encouraging Congress to pass the Employment Participation in Repayment Act (EPRA).
The action taken by the Senate as part of the COVID-19 response essentially provides the benefit we hoped to see enacted in ERPA, but only makes it available through the end of this year.
Our goal is that employers will take advantage of this opportunity to help their employees pay down their student loan debt through this tax-free contribution—and that if this program proves successful, it will be made permanent.
Extension of Suspension of Federal Student Loan Payments
The legislation also extends the Department of Education’s temporary suspension of payments on federal student loans until September 30, 2020. This extension applies to those with federally held loans, not private ones.
Borrowers seeking loan forgiveness through programs like the Public Service Loan Forgiveness Program will not be penalized for missing payments over the next six months.
If these borrowers choose to make payments over the next six months, they will still count as qualifying “payments” toward those loan forgiveness programs.
Student Loan Refinancing with SoFi
During a time of zero interest and payment pauses on federal student loans, it likely doesn’t make sense to refinance federal student loans to ones charging interest and having regular payments, no matter how low that rate or payment might be.
Note that these payment and interest relief programs are not available for private student loans, so it still may make sense to explore how refinancing could benefit borrowers with outstanding private student loans.
Many of these policies, however, are intended as temporary measures. When interest begins to accrue again and payments required again, it may make sense to investigate student loan refinancing.
Consolidating loans into one payment can make it more convenient for borrowers, and refinancing to a lower rate can reduce interest payments or shorten the repayment of the student loan.
With SoFi’s student loan refinance program, borrowers can consolidate and refinance in one straightforward step—and are also able to combine federal and private student loans together, when it makes more sense to do so, as these temporary measures expire.
We will continue to report on the state of the federal student loan interest waiver and payment pause as more information develops.
Student Loan Refinancing External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
Student Loan Refinancing
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.