There are so many things going on in Washington, DC, right now. Besides Joe Biden announcing Kamala Harris as his running mate, President Trump issued a student loan order that suspends interest and payments beyond September 30, 2020.
While Trump’s order extended some relief of the CARES Act, it also comes with some confusion.
Since it will have a significant impact on your student loans, here’s a rundown of what the order means for you.
Will student loan payments resume in October?
I’ve been asked many questions about Trump’s student loan order, and I’ll cover those in a minute. First, let’s get your biggest concern out of the way:
Will payments resume in October?
President Trump’s student loan order extends zero interest and zero payments until December 31, 2020. The Trump administration plans to take another look at the extension around December 1, 2020, to determine whether to extend it beyond that date. In reality, he’d have to look at it in early November to give enough time to notify the loan servicers not to contact borrowers to restart their monthly payments.
The problem is that the orders might not be constitutional, and they may not have the power they claim to have.
Three biggest questions borrowers have right now
Knowing the suspension on student loan payments will continue through the end of December, borrowers have additional questions. Here are the top three questions I’ve received from Student Loan Planner® readers:
Do the suspended payments from October to December count for forgiveness?
The CARES Act that went into effect March 13, 2020, explicitly stated that the suspended payments would count toward your qualifying PSLF payments. But what about Trump’s student loan order? Will the suspended payments for October, November and December count?
It depends. The language in the order suggests that it will. A specific economic hardship deferment is mentioned, and that’s what the president relies on when saying the months of suspended payments will count.
But again, the question is whether it’s legal. It would seem like the Secretary of Education can’t broadly offer economic hardship deferment or suspend interest.
Suppose the Secretary of Education has the power to declare an economic hardship deferment based on Code 1098e Section B7. In that case, the economic hardship deferment applies to student loan forgiveness that doesn’t exceed 25 years. That includes taxable forgiveness.
But there’s a catch: I don’t think the suspended payments from October to December will count toward PSLF. I looked at the ECF form, and it says you must make 120 qualifying payments. A qualifying payment for PSLF is:
- A separate, on-time, full-monthly payment
- Made on an eligible loan
- Under a qualifying repayment plan
- While employed full-time by a qualifying employer
There’s no mention that months under economic hardship deferment will count toward PSLF.
However, I think there’s a good chance that Congress will clean up after Trump’s statement on behalf of borrowers. They could back-date any future bills to October 1, 2020, to make the payments count toward forgiveness. But that remains to be seen.
Will the interest continue to be suspended?
For now, interest and payments will continue to be suspended. However, the biggest question is whether the president has the authority to suspend interest and payments.
The authority I’ve seen on the subject is found in 20 U.S. Code § 1087hh. It’s part of the section on Higher Education Resources and Student Assistance and states:
In carrying out the provisions of this part, the Secretary is authorized—
1. to consent to modification, with respect to rate of interest, time of payment of any installment of principal and interest or any portion thereof, or any other provision of any note evidencing a loan which has been made under this part;
If the Secretary of Education has this power, they could unilaterally cancel student loan debt. And that means, in theory, they could cancel all $1.6 trillion of student loan debt.
But it’s open to interpretation, and it could lead to a significant legal battle.
Does the order grant relief to borrowers in default?
Under the CARES Act, the suspended payments counted toward the nine months of payments that borrowers must make to get out of default. Even if you started your journey out of default in March, at the beginning of the suspension, you’d only need two more months of on-time payments by the end of September.
However, Trump’s student loan order doesn’t apply to people in default. If you’re in default, pay close attention to when your payments might resume so you don’t fall behind and end up worse than when you started.
What does all of this mean for you?
With all the uncertainties, here’s my advice:
- If you’re doing a 20 or 25 forgiveness program, I would accept the economic hardship deferment under President Trump’s student loan order. Chances are good that Congress will pass a bill to give you credit for it.
- If you’re in the PSLF program, don’t like your job and will make a huge life change as soon as your loans are forgiven, then I would probably cancel the deferment and make the payments to get credit without any uncertainty.
- If you’re in PSLF with low monthly payments, such as if you’re a resident, you might cancel the deferment starting October 1, 2020.
- If you’re in PSLF with high monthly payments, maybe you’re an attending, you probably want to take the economic hardship deferment and put your money into savings instead.
- If you’re not pursuing forgiveness, the choice depends on your financial situation. You might take advantage of the deferment if you’re unemployed, your job is in jeopardy, or you have little in savings.
The most likely scenario is that people will get credit for forgiveness. When Congress eventually passes something, they usually do it with retroactive clauses.
Keep in mind this is not 100%. This advice is just my opinion based on what I think might happen. There’s a lot of uncertainty right now, and I can’t predict what will happen in the courts if someone challenges the president’s student loan order.
We’ll have more information on this in the coming months. The CARES Act doesn’t end until September 30, 2020, and most servicers have opted to have payments restart by October 30. Between now and then, there’s plenty of time for Congress to put a bill together and clarify many of these uncertainties.
And remember, none of this changes your long-term student loan repayment strategy. If you don’t have a clear plan to tackle your student loans, I encourage you to book a consult with one of our student loan planners. You’ll walk away with a clear understanding and a step-by-step plan to repay your student debt.