What The CARES Act Means For Your Student Loans
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COREY NOLAN: Hi, my name's Corey Nolan (ph) and I'm calling about the COVID-19 quarantine survival tactics and how people are coping. I am actually scheduling out everything. So on my calendar, I am scheduling walks and I'm actually scheduling time to catch up with friends and family and putting it on my calendar. And it's given me a sense of control and a sense of routine and a new normal. Thanks so much. Bye.
ANNA SALE, HOST:
Student loans are complicated.
UNIDENTIFIED PERSON #1: So I just wanted to clarify...
UNIDENTIFIED PERSON #2: Should I continue making payments as normal?
UNIDENTIFIED PERSON #3: Will the interest that remains on my loans be capitalized and be added to my current principal?
SALE: It's easy to get lost in the mounds of paperwork and murky rules. Adding to the stress, the current pandemic.
UNIDENTIFIED PERSON #4: And where are the details on that?
UNIDENTIFIED PERSON #5: Basically my question is...
UNIDENTIFIED PERSON #6: Is it true that we really don't have to make any payments?
UNIDENTIFIED PERSON #7: Is that right?
UNIDENTIFIED PERSON #8: Mustn't there be some confusing and difficult red tape?
SALE: Coronavirus has changed the student loan landscape here in the U.S., forcing borrowers to make tough financial decisions about their loans.
UNIDENTIFIED PERSON #9: We just want to make absolutely certain that we understand correctly.
SALE: And there's some help out there, if you know how to find it. Hey, I'm Anna Sale. I'm the host of the WNYC studios podcast Death, Sex & Money, and this is a special collaboration with NPR's LIFE KIT. This episode, we're going to give you advice about managing student loans during this pandemic. We'll help you understand which kind of loans you have and which loans are eligible for what kind of relief because all of this can get confusing.
But we are, Betsy, we are going to walk into the weeds of student loans together. So I want you to take my hand and we're just going to step into it, OK? Are you ready?
BETSY MAYOTTE: Let's do it.
MAYOTTE: Yep, I live there so I know the way around.
SALE: This is Betsy Mayotte. She runs a nonprofit called TISLA, The Institute of Student Loan Advisors. We saw a tweet from a listener that called her the student loan lady.
Was that how you want us to refer to you, or is there another nickname you'd prefer?
MAYOTTE: Student loan lady is good. During nonpandemic times, I have been called the PSLF princess.
She's worked for years in the student loan industry. I interviewed her last year to answer some student loan conundrums.
Student loan woman? Do you like that better?
MAYOTTE: Student loan warrior. It is a battle sometimes.
SALE: Betsy would know. She's going to help us make sense of all your questions so you can make sound decisions about your payments.
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SALE: I wanted to begin with Betsy Mayotte with the CARES Act, that big economic relief package that was passed by Congress at the end of March - because it's pretty significant for some student loan borrowers.
MAYOTTE: Seventy-five percent of federal student loan borrowers don't have to do a darn thing and they will receive a waiver of their payments through September 30 and 0% interest through September 30. And again, they don't have to do a darn thing to get those benefits.
SALE: It's like stopping the clock for them.
MAYOTTE: That's a great way to put it.
SALE: How do you know if you are one of those people who has student loan debt - one of those 75% percent where you don't have to do a darn thing but can take a pause on making payments?
MAYOTTE: So that's where it gets complicated. So it needs to be a federally held federal loan. Now, there are two primary federal student loan programs. One is the Direct Loan program, and that's where the lender is the government. And one is the Federal Family Education Loan Program, and that was where the government was sort of the guarantor of the loan and a private lender was the lender. What makes it extra confusing is that they both have Stafford Loans. They both have Parent Plus. They both have consolidation.
SALE: Oh, so the loans are called the same thing.
MAYOTTE: Right. So they're exactly the same except where they're different.
SALE: I know. This is complicated. Just to be clear, the Federal Family Education Loan Program, known as FFEL, is, as the name suggests, a federal program. The reason those types of loans don't count for relief is that some loans under that program are held by commercial banks. Again, confusing - this gets people all the time. So this is your first takeaway - find out if your federal student loan is federally held before you assume you're eligible for the relief provided in the CARES Act.
MAYOTTE: So you can't just look at your loan type or look at your loan servicer to determine whether your loan is eligible for these CARES Act waivers. You need to determine who the lender is. And the best way to do that is to either ask your servicer if you have a federally held federal loan or to log on to studentaid.gov and look at the loan detail and see if it lists the Department of Education as the lender.
SALE: Some good news - Betsy says if you took out a federal loan after July 1, 2010, you're in the clear and don't need to go through the double-checking process.
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SALE: Now, let's say your loan is in fact federally held and eligible for the CARES Act relief. Do you have to stop paying your loans right now? Here's one listener's question about that.
ALICIA: Hi. This is Alicia (ph) in Washington state. And I'm wondering if I can afford to continue to pay my student loan payments, I should be doing that right? And if I go ahead and do that, how is it going to help me? Thank you.
SALE: So if you have the money, should you just keep making payments as always?
MAYOTTE: So the short answer is probably. The only caution I would make is, you know, we don't know what the long-term economic impact of this pandemic is going to be. So I would make sure that your emergency fund is in really good shape, that you have a very robust emergency fund. And you know, if you have any other higher-interest debts out there, you may want to take a look at those. But otherwise, absolutely. I mean, this is practically free money. Any payments that you send during this period, assuming you didn't have a lot of interest that had built up prior to March 13, all of it is going to go to principal, which is going to save - not only is that interest-free money, but it's going to reduce your balance more than it would have been reduced if the waivers weren't in place, which means that you're going to save more interest over the life of a loan as well.
SALE: Oh, that's interesting. I hadn't thought of that. Because interest isn't accruing, whatever you spend goes straight to principal.
SALE: So you can chip away at that if you have the money to do it. What if you're in the opposite position? Say you made your student loan payment in March and then the world changed and you realize - oh, God, I wish I could have that student loan payment back, and actually it's one that I didn't have to pay. Can you get that money back?
MAYOTTE: If the payment was made after March 13, you can call and request that payment be refunded to you, assuming that your loans are eligible for the waiver.
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SALE: OK. So if you're eligible for CARES Act relief but you want to pay down your principal balance on your loan, now might be a good time to keep paying your monthly bill. Now let's talk about those in the Public Service Loan Forgiveness Program. We have some good news, and it's our second takeaway. Public Service Loan Forgiveness participants do not need to make payments until after September 30, 2020.
MAYOTTE: There's no benefit to paying. You're stealing from yourself.
SALE: The Public Service Loan Forgiveness Program allows borrowers working in qualified public service jobs to have their loans forgiven by the government after 10 years if they make 120 on-time payments. And there's been a lot of anxiety and controversy about this program, as the kinks in the system are not entirely worked out and a lot of people have struggled to get their loans forgiven. So understandably, we got a lot of questions from people in the program about how the CARES Act would impact them, like this one from Kevin.
KEVIN: I'm a physician assistant in New York City pursuing the Public Service Loan Forgiveness. I recently received an email from FedLoan Servicing stating that I will have my payments postponed or placed on administrative forbearance but that these months will still count as qualifying payments for the Public Service Loan Forgiveness. Can this truly be the case? Thanks in advance.
SALE: So is that true? Can you skip these months of payment and they will still count towards those 10 years of on time payments?
MAYOTTE: Well, first of all, let me take my student loan lady scarf off and put my PSLF princess crown on. And I know this sounds too - I've seen so much anxiety over this because it sounds too good to be true, but it is absolutely 100% true that under the CARES Act, you do not have to make any payments on your eligible Direct loan. You know, while you're working for an eligible employer, you're going to get the 0% interest rate. And that six months is going to count towards PSLF just like you were actually making the payment. And again, I know it sounds too good to be true. I have so many borrowers that are just so anxious about it. They say, well, I'm going to pay anyway. Don't pay. There's nothing to hedge. The CARES Act is super, super, super clear about this - that period of time will count just like you made a payment.
SALE: Just to recap our second takeaway - if you are enrolled in Public Service Loan Forgiveness, take advantage of the CARES Act and do not make any payments until after September 30, 2020. Otherwise, you'll be making payments that you didn't have to make.
MAYOTTE: That's absolutely right. Take those payments, sock them away in a separate savings account if you have some anxiety. And then when you do get your forgiveness, you can take a nice vacation - hopefully.
SALE: (Laughter) I know.
MAYOTTE: If we're not all still quarantined, you can take a nice vacation.
SALE: Now, for those of you listening who want to double- and triple-check this, we totally get it. You can see this in writing for yourself from the federal government.
MAYOTTE: The Department of Education has their own FAQ page, and it's very clearly written on that FAQ page. And you can find a link to that page of ed.gov. You'll see a box that says COVID-19 Guidance, and you click on it, and it'll bring you where you need to go.
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SALE: You can also see all of the CARES Act details at Betsy's website freestudentloanadvice.org and at her organization's special COVID-19 student loan site studentaidpandemic.org.
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SALE: So far, we've talked about the CARES Act and the six months of relief that it provides for people who have federally held federal student loans. We talked about how to find out if you have that type of loan and what it means for you if you're enrolled in the Public Service Loan Forgiveness program. But what about those who have private loans, like this listener, Shayla (ph), in Illinois?
SHAYLA: I know there's been a lot of conversation about the CARE (ph) Act and the impact that it has on people who have federally backed loans. But is there any recourse or is there anything in place for those who have private loans who are also suffering through this pandemic and may need some sort of financial assistance? Thanks so much.
MAYOTTE: Private loans, unfortunately, there's no sort of blanket guidance other than to call your loan holder, if you're financially struggling, and see what they're offering.
SALE: So that's tip No. 3 - if you have private student loans or the federal kind that aren't eligible for CARES Act relief, reach out to your servicer and see what options they can offer you.
MAYOTTE: The chatter that I'm hearing from some of the lenders is that some of them are offering automatic relief. I know of some that have reduced interest rates across the board. I haven't heard a single one that hasn't said that they have - that there isn't something they can do to help if the borrower is struggling and at least gives them a call. But on the other hand, I've also heard some that, at this point, they're only offering what their sort of typical relief would be, which would be limited forbearance - and sometimes for a fee.
SALE: Quick refresher - a forbearance is when you're allowed to postpone your student loan payments for a period of time. But interest usually continues to accrue. And if that interest isn't paid off by the time that the forbearance ends, it can get tacked on to your principal balance, which can cost you a lot more money in the long run. So if you have private student loans and you're having trouble paying your student loan bills right now, call your servicer and ask them about all of your options.
And if you're struggling to pay your bills and you've got the type of federal loans that are not covered by the CARES Act, there are options for you, too, like switching to an income-driven repayment plan, which could lower your monthly costs.
MAYOTTE: But there are other options as well. There is unemployment deferment. There's economic hardship deferment. So depending on what your situation is will depend on what the best solution is for you during this period of time.
SALE: The thing you really don't want to do right now is just ignore your student loan bills. Takeaway No. 4 is for those who have defaulted on their federal loans. This is a good time to look into what's called Loan Rehabilitation.
MAYOTTE: There's a program called Loan Rehabilitation, which allows a defaulted federal student loan borrower to get back on track. It's a great program. Normally, you have to make nine consecutive on-time payments to get loan rehab. But under the CARES Act, this six-month period that they're putting collections on hold counts just like you made a rehab payment. So just like - it's very similar to what they're doing with Public Service Loan Forgiveness. So instead of having - if you were already in a loan rehab program - let's say you were three months in when the CARES Act waivers kicked in - you don't have to make another payment, and your loan will be considered rehabilitated, assuming you sent the rehab agreement back in. I have never seen them do anything like this before. This is a gift to those borrowers in that situation.
SALE: So if you're already in a loan rehabilitation program, this is great news for you. And if you're thinking about getting into that program, Betsy says, as of right now, it's looking like this CARES Act policy would apply to you, too.
MAYOTTE: And at this point, you know, as of today, they haven't said anything different. But it's possible that they could say that you had to have already been in a loan rehabilitation program for those payments to count. So you know, if you're listening to this two months from now, it's probably a good idea to double-check either our website or the Department of Ed's website to make sure they haven't added that caveat.
SALE: How do I go about getting into a loan rehabilitation? What do I do?
MAYOTTE: Call whomever is the collection agency that's in charge of your loan. And if you're not sure who that is, you can log onto studentaid.gov, and it will show you who the collection agency is.
SALE: But let's say you were already in default on your loans before the pandemic hit. The good news is, if they're federally held loans, there could be some relief out there for you, too.
MAYOTTE: Defaulted borrowers of federal loans are - were also given pretty significant relief. If you have federally held defaulted loans, there will be no collections for the time being, likely through September 30. If you were set to have your tax refund or your wages garnished or even your Social Security garnished, any of those activities that were due to happen after March 13 are canceled. So they're stopping all collections on federally held defaulted loans for the time being, likely through September 30.
SALE: Betsy also added that if your tax refund was already garnished but it was after March 13, you're eligible to get it back.
MAYOTTE: You may have to call and ask for that refund, but I've already seen people already get those monies back. So that's for federally held defaulted loans.
SALE: You might have noticed through this entire conversation that borrowers who have these federally held federal student loans are getting the most support right now. And for people who haven't yet taken out loans but are heading to school soon, Betsy has one more word of advice for you.
MAYOTTE: There might be a stronger temptation to take a private loan versus a federal loan because the interest rates are currently so low.
MAYOTTE: I stand by - the advice that I always give is that, in general, you should try to stay away from private loans. Private loans aren't eligible for the 0% interest rate or the six-month payment waiver, and federal loans are. And that applies even when we're not in a pandemic. So even though you might see really low private loan interest rates, I would think long and hard before taking those over a federal loan. And it's not the only reason. There's Public Service Loan Forgiveness; there's income-driven repayment plans; there's deferments - those are all things that the vast majority of private loans don't offer. So even in the good times, it's good to know that those sort of lifeboats are available.
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SALE: So just to recap, because we covered a lot of ground and, let's be real, this stuff is pretty confusing, here's Betsy again with the big tips we just touched on. No. 1...
MAYOTTE: If you have federal student loans, find out if they are federally held or not.
SALE: If they are, you are eligible for CARES Act relief. Find out what kind of loan you have by asking your servicer or checking to see if the Department of Education is listed as the lender for your loan at studentaid.gov.
MAYOTTE: Tip No. 2 - if you're enrolled in Public Service Loan Forgiveness and continue to work full-time for a qualified employer, take advantage of the CARES Act and do not make any payments, at least until after September 30.
SALE: Tip No. 3 - if you have private student loans or the federal kind that aren't eligible for CARES Act relief and you can't pay your bills right now, reach out to your servicer.
MAYOTTE: I do expect that, as time goes on, that the type of relief offered by the private lenders will likely evolve with most of them. So again, if you're struggling, I would absolutely make a call.
SALE: Tip No. 4 - if your federal loans are in default, look into entering a loan rehabilitation program. You only get one shot at doing it. But because of the CARES Act, now could be a good time to get that process started. And one more bonus tip from Betsy to leave you with - watch out for scammers.
MAYOTTE: People like this come crawling out of the gutters during times of crisis. Anybody that tries to create a sense of urgency, like you have to do X or you're not going to get the waiver or you have to pay this fee, that is almost certainly a scam. And anybody who runs across any of those, please, please, please take a minute and report them to the Federal Trade Commission, who's been doing a lot of work battling these scammers. You'd be doing the rest of humanity a favor if you report them if you do come across them.
SALE: That's Betsy Mayotte - student loan warrior, PSLF princess and founder of The Institute of Student Loan Advisors, or TISLA. You can find her website at freestudentloanadvice.org. Or check out her pandemic-specific site at studentaidpandemic.org.
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SALE: And one more tip from me to you - Betsy answers email questions from borrowers, so hit her up.
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SALE: For more on the podcast that I host, Death, Sex & Money, subscribe wherever you listen to podcasts and sign up for our newsletter at deathsexmoney.org/newsletter. We did a whole series of episodes featuring listener stories about student loan debt a few years back. You can find that by texting LOANS to the number 70101. And for more NPR LIFE KIT, make sure to check out the other LIFE KIT podcasts at npr.org/lifekit. You can also subscribe to their newsletter at npr.org/lifekitnewsletter. Whether it's about your student loans or otherwise, leave LIFE KIT a voicemail at 202-216-9823. I'm Anna Sale. Thanks for listening.
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