While struggling student loan borrowers continue to wait for more permanent solutions to their student loan debt as outlined in my previous blog post Student Loans in Bankruptcy, the U.S. Department of Education (“DOE”) has provided some temporary relief available to federal student loan borrowers. Federal student loan interest rates, which are set by Congress, have temporarily been reduced to 0%. This change automatically went into effect on March 13, 2020, for all borrowers with qualifying federal student loans and is currently scheduled to last for 60 days.
The DOE also provided guidance to student loan servicers that any borrower requesting a temporary forbearance on payments due to Covid-19 should be granted. This relief is also in place for the next 60 days. However, unlike the suspension of interest, this relief must be requested by the borrower. While interest generally continues to accrue during periods of forbearance, because of the temporary suspension of federal student loan interest, the Covid-19 forbearance is essentially an interest-free period of non-payment. That said, borrowers who are working toward a public service loan forgiveness should contact their lender to determine if this forbearance would impact their qualification for forgiveness. And all borrowers who avail themselves of the forbearance will extend the repayment period of their loans for as long as the forbearance lasts.
In addition to the above, the DOE has halted all collections on student loan borrowers 31 days or more delinquent in payments.
There is no similarly standardized relief available on private student loans. Struggling borrowers should contact their lender to see what assistance may be available in light of the economic hardships presented by Covid-19.
You can read more about the relief available to federal student loan borrowers here.
About the Author: Dana Quick practices in the area of insolvency and commercial litigation. Her experience includes prosecuting director and officer liability claims; representing trustees, creditors, creditor committees, and debtors in bankruptcy proceedings; state court insolvency litigation; and prosecuting and defending preference actions. Additionally, Dana has significant experience representing and counseling companies of all sizes on employment issues, including ADA, FMLA, and Title VII matters. Click here to find out more about Dana.