President Trump’s order on student loans relies on economic hardship deferment to extend student loan relief to tens of millions of individuals with federal student loans.
The administration issued a student loan order that suspends student loan interest and payments for the rest of 2020, until December 31.
The key questions from our readers have been:
- Do these suspended payments count for student loan forgiveness?
- Will my interest be suspended?
- Does this order grant relief to borrowers in default?
We’ll share our thoughts and why we think this action will force Congressional legislation either now or in the future, after the 2020 election.
- How we got to the point of a student loan order
- What does Trump’s order do for student loan relief?
- What about PSLF relief from Trump’s order?
- Can President Trump suspend student loan interest?
- Will the student loan order help borrowers in default?
- Why congressional action on student loan relief is likely
- What borrowers should do following Trump’s student loan order
How we got to the point of a student loan order
A quick background: on March 13, 2020, President Trump announced he would suspend student loan interest and payments on Direct and government-owned FFEL student loans. Congress followed up with the CARES Act about two weeks later.
Thanks to very clear text in the CARES Act, we know that suspended payments between March 13 and September 30, 2020, all count toward programs like Public Service Loan Forgiveness (PSLF) and 20- to 25-year “taxable forgiveness” under income-driven repayment (IDR) programs like PAYE, REPAYE, and IBR.
Here’s how we know this from the CARES Act text:
“The Secretary shall deem each month for which a loan payment was suspended under this section as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program […] for which the borrower would have otherwise qualified.”
That’s crystal clear.
Then House Democrats put forward the HEROES Act, which would’ve suspended student loan interest and payments for an additional year beyond the CARES Act (until September 30, 2021). Senate Republicans, however, refused to pass it.
I noticed that there was clear bipartisan support for extending the CARES Act student loan interest and payment suspension beyond September 2020 when a Republican of the House sponsored HR 7114.
This bill simply would change the dates in the CARES Act from September 30 to December 31, 2020, granting an additional three-month extension of its benefits.
Then, Senator John Cornyn (R-Texas) said he backed an extension of the student loan relief in the CARES Act because “the benefits had been popular with his constituents.”
So Congress only disagrees on how long to extend student loan relief under the CARES Act, not whether it should happen at all. Hardline conservatives have focused their ire on the $600 weekly enhanced unemployment benefits, without a single voice against the student loan relief of the CARES Act.
However, this being an election year, and Congress being incredibly polarized, this issue isn’t important enough for Congress to warrant a one-off bill. That’s why, when the overall talks between the Trump administration and Congress broke down, the President decided to issue this student loan order.
What does Trump’s order do for student loan relief?
The text of Trump’s student loan order states that the Secretary of Education will modify the terms of economic hardship deferment “to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”
It also notes that “all persons who wish to continue making student loan payments shall be allowed to do so.”
Later guidance from Dept of Ed stated that all payments would count towards forgiveness programs, including PSLF.
An earlier version of this article speculated that the order would not do that.
What’s economic hardship deferment and why’s it important?
Economic hardship deferment for student loans is allowed for up to three years. Generally, it applies if your income is below 150% of the poverty line for your family size.
However, in 20 U.S. Code § 1085(o)(2), an additional definition allows the Secretary of Education to allow economic hardship deferment for special circumstances.
According to US Code 1098e(b)(7)(B)(v), economic hardship deferment counts toward student loan forgiveness programs where the borrowers has to make a payment for a period of time “not to exceed 25 years.”
That means this economic hardship deferment counts for 20- to 25-year REPAYE, PAYE, and IBR forgiveness programs.
Based on further guidance from Dept of Ed, these suspended payments also count towards PSLF.
What about PSLF relief from Trump’s order?
Does President Trump’s student loan order do anything for borrowers pursuing PSLF?
The Secretary of Education decided that yes, it does.
I’m not an attorney. I was highly skeptical initially that the Secretary of Education had this power. However, it seems that no one wishes to challenge it.
Therefore, it seems like the servicers and Congress are content with this interpretation. So expect suspended payments to count towards PSLF from October to December.
Can President Trump suspend student loan interest?
There’s significant debate as to whether or not the President can suspend student loan interest.
Those saying yes point to 1087hh(1), which says the Secretary of Education can:
“Consent to modification, with respect to rate of interest, time of payment of any installment of principal and interest or any portion thereof…”
Does that apply to all borrowers at once or only to specific borrowers? Lawyers, courts, and judges will definitely debate this in the coming years with mounting calls to cancel student loan debt.
Senators like Elizabeth Warren argue that the power above grants the Secretary of Education the ability to discharge all federal student loan debt without the consent of Congress.
However, the power to appropriate money rests exclusively with Congress, and suspending student loan interest would cost anywhere between $4 billion to $6 billion a month.
If Republicans don’t fight President Trump’s interest suspension, it could legitimize Senate Democrats’ interpretation of the law and open the door to mass student loan forgiveness in the future.
Will the student loan order help borrowers in default?
Another provision of the CARES Act said that suspended payments would count toward the nine months required for a borrower in default to no longer be in default under a student loan rehabilitation plan.
Importantly, borrowers who entered March 13, 2020, in default have about seven months of qualified payments right now.
Guidance from the Dept of Ed likely protects these borrowers as well. You will probably see a lot of borrowers be able to get out of default because of these student loan relief actions.
Why congressional action on student loan relief is likely
To summarize so far, we think that:
- The President’s other executive orders are more controversial. Hence, even though we’re not convinced everything he did was legal, it’s likely to go unchallenged.
- Because this order likely will stand intact, that means interest will in fact be suspended, and these suspended payments will in fact count towards 20 / 25 year forgiveness and PSLF.
- Borrowers in default on their student loans will not have collections resume.
Earlier, I said that Congress believes the CARES Act student loan relief should be extended anywhere between three to 12 additional months.
If Joe Biden wins the election, compromise legislation will likely extend these benefits through September 30, 2021.
What borrowers should do following Trump’s student loan order
To paraphrase the Book of Matthew, tomorrow will worry about itself.
That’s the best strategy I can give to you as a student loan borrower.
You don’t have to worry about anything until December 31, 2020.
So here’s how to react to the Trump student loan order:
- Pursuing PSLF – Continue the payment suspension. File your ECF form at the expiration of the Trump student loan order.
- Pursuing 20- to 25-year forgiveness – Let your payments stay suspended. These zero dollar payments count toward forgiveness under the rules of economic hardship deferment.
- Paying off your federal loans – You can make extra payments to pay down principal, but I’d suggest putting the money in a savings account so you can earn a bit of interest until the student loan relief expires. Then, you can take that lump sum of money and put it to work on paying down your loans.
- Paying off your private loans – Unfortunately, no likely Congressional bill or presidential action provides meaningful relief to you. If you’re struggling, you can ask your lender for 90 days of forbearance, which they will very likely provide to you. If you’re doing fine and looking for ways to pay down your debt sooner, then refinance your private student loans to a low-interest rate since lenders are offering some of the best deals ever.
Have any thoughts about Trump’s student loan order? Want to opine what you think a future Congress or President will do? Comment below.