Secretary of Education Betsy DeVos extended the student loan deferment originally laid out in the CARES Act and again in President Trump’s August 8 memo on August 21, giving millions of Americans relief until the end of the year.
However, the original CARES Act – which was set to expire September 30 but was extended to December 31, 2020 – excludes loans that are not owned by the Department of Education. This affects two very common types of loans: FFEL and Perkins Loans.
FFEL and Perkins Loans are held by over 14 million students and graduates, according to Student Loan Hero, and representing the equivalent of $267 billion in student loan debt. Here’s what you need to know if your student loan is one of those excluded from deferment.
The Deferment Extension Applies to a Majority of Student Loan Types
— Rob Berger (@Robert_A_Berger) August 22, 2020
Direct loans, Stafford loans (subsidized, unsubsidized and combined), Parent PLUS and grad PLUS loans are all made by the U.S. Department of Education and therefore, are all covered by the deferral extension.
Those types of loans make up a combined 96.6 million borrowers, according to Student Loan Hero. Those borrowers will not have to take any action in order to see their interest rate set to 0% and their repayments suspended. However, the Consumer Finance Protection Bureau has pointed out that borrowers can call their loan servicer and ask the suspension to be removed if they want to make payments directly to the principal and pay their loans off faster.
Moreover, borrowers with federally-owned loans in default would have already seen the CARES Act halt any further collection activities, including wage garnishment. According to the Consumer Finance Protection Bureau, “The CARES Act requires the Department of Education to stop the collection of defaulted federal student loans, including garnishment of wages and the offset of tax refunds and Social Security benefits.”
Additionally, graduates who entered into a Public Service Loan Forgiveness loan repayment program with federally-owned loans will still be able to have their nonpayments count to the 120 required for student loan forgiveness. According to Student Loan Hero, there were 1,132,007 borrowers as of September 2019 who were a part of the PSLF program.
Commercially-Owned Loans Are Still Ineligible for Deferment
Okay, now I'm getting annoyed. Public Service Forgiveness and now CARES specifically exclude my student loans from qualification.
I know why they were excluded; after consolidation, they all became commercially owned. What I don't get is why the exclusion exists.
— Seperis (@seperis) April 9, 2020
Please note that some FFEL Program and HEAL loans are owned by commercial lenders, and some Perkins Loans are owned by the institution you attended. These loans are not eligible for this benefit at this time, but you can contact your servicer to ask about what benefits may be available.
The reason they are not included is because, as indicated, many of those loans are not owned by the federal government and therefore, the government cannot mandate how money is collected on them. Forbes reported that six million of the 12 million FFEL loans in existence are owned by commercial lenders which means that borrowers with those loans must continue making payments on them (the FFEL program was halted in 2010 and some, but not all debt was purchased by the federal government).
The Student Borrower Protection Center wrote an article pointing out that the provisions in the CARES Act provide no remedy for those with non-federally-held debt. That organization estimated that there were eight million borrowers with commercially owned FFEL and Perkins loans, owing roughly $175 billion in student debt.
To find out if your loan is excluded from deferment relief, you can visit StudentAid.gov/login, login with your FSA ID, go to your StudentAid.gov dashboard and click “view details.” Underneath the Aid Summary, you should see the “Loan Breakdown” section, which lists your loan servicers’ names. According to Student Aid, servicer names that begin with “DEPT OF ED” are owned by the Department of Education and included in the deferment and its extension.
Borrowers With Commercially-Owned Student Loans May Still Have Some Options for Relief
The Division of Banks has joined a multi-state initiative to secure payment relief options with 15 private student loan servicers to expand on protections the federal government granted to federal student loan borrowers, with over 182k residents standing to benefit. #COVID19MA pic.twitter.com/wkuyQYkTUi
— MA EOHED (@MassEOHED) April 22, 2020
All is not lost if your loan does not qualify for relief under the deferment extension.
Borrowers can check to see if their state is offering any assistance for those with commercially-owned loans and you can also contact their commercial lenders, many of which are offering their own deferments and forbearances. As the Executive Director Scott Buchanan of the Student Loan Servicing Alliance told Forbes, both FFEL and Perkins loans have built-in deferment and forbearance options that you can take advantage of.
Forbes and Marketwatch have reported there is a chance those FFEL loans could become part of the deferment if they are made part of a federal Direct Consolidation Loan; however, this only applies under specific circumstances and can only be determined after a discussion with your loan servicer.
You can find a list of Department of Education-owned loan servicers here along with their phone numbers.
There is also some legislation that might help. New York Congresswoman Elise Stefanik has introduced The Equity in Student Loan Relief Act and The Covid-19 Perkins Loan Relief Act in the U.S. House of Representatives. Both acts would allow borrowers to experience relief similar to that of people with federally-owned loans.