Behind the Scenes of Student Loan Payments During Covid-19
Recent media reports have warned of increasing federal student loan defaults and called on Washington to extend the current suspension of payments. In one part for CNBC, Annie Nova quotes Mark Kantrowitz, a higher education expert, as saying that “the payment break and the interest waiver should be extended as the disruption is underway and the recovery will be slow.”
While experts say more defaults and defaults are coming, the irony is that Congress has already taken action to prevent this without throwing in the towel on the entire $ 1.4 trillion in loans. In progress. Decades of bipartisan efforts have produced programs for federal student loan borrowers that are ideally suited to meet current circumstances. What is needed now is additional education on how to take advantage of these programs.
A little history
In 1994, Congress and then President Bill Clinton introduced the first income-based repayment plan called Income-Contingent Repayment (ICR). The ICR plan allowed borrowers to repay their federal student loans with a monthly payment amount that took into account both the borrower’s income level and family size. If the loans were not fully repaid within a specified period (20 or 25 years), the remaining balance was canceled. So a payment of zero dollars could effectively keep the borrower in “good standing”.
Congress continued to improve and expand the program under President George W. Bush and President Barack Obama.
In 2007, the process was updated and made more user-friendly for borrowers by capping the payment amount at 15% of discretionary income and providing for a loan forgiveness after 25 years.
In 2010, the program was further improved and was called Pay As You Earn (PAYE). This program limited monthly payments to 10% of discretionary income and provided for a rebate after only 20 years. In 2015, the plan underwent further enhancements and is called Revised Pay As You Earn (REPAYE).
All of this reflects a long-term, bipartisan effort to provide student loan borrowers with the tools and resources to face the very times we live in today. Income-based reimbursement is already available to provide relief to the millions of people who have been so deeply affected by the Covid-19 pandemic.
These unique plans can allow reduced payment amounts, many amounting to $ 0.00 per month, for up to one year. Congress even had the foresight to make sure that if you had a $ 0.00 repayment plan, those payments would continue to count towards the civil service loan forgiveness. Congress and past presidents have provided student loan borrowers with options to avoid the painful consequences of delinquency and default.
Back to today
The CARES Act signed by President Trump on March 25, 2020 did a few important things related to delinquent loans:
It set the interest rate on all outstanding loans at 0% for the period March 13 to September 30, 2020.
It automatically put all loans (in default and not in default) into forbearance from March 13 to September 30, 2020.
It has eliminated all administrative wage garnishments on overdue loans from March 13 through September 30 (if a garnishment has occurred, the FSA says the money will be paid back).
It provided that, if a borrower was enrolled in a rehabilitation plan before March 13, 2020, payments that would have been due between March 13 and September 30 but which are automatically forborne, will count towards the nine payments necessary for the rehabilitation. . For example:
If a borrower signed up in February and made payments on February 10 and March 10, payments of $ 0 from April to September will count towards pardon.
If a borrower signs up in June, the documents will be put together, but the borrower will make payments of $ 0 for June-September. So she should only have five payments after that against a total of nine payments to rehabilitate the loan and get out of the default.
It provided that if a borrower was enrolled in an Income-Based Repayment Plan (IDR), payments of $ 0 during the forbearance period would apply to the pardon requirement.
The CARES Act also prohibited private collection agencies from sending collection letters or making outgoing collection calls to delinquent federal student loan borrowers, meaning CPAs cannot contact borrowers to notify them. of these programs and opportunities. The only way a borrower can find out about them is to read the FAQs on the Federal Student Aid website.
insideARM learns that the FSA has made an exception. CPAs can send ONE letter and make ONE phone call to the subset of borrowers who have expressed interest in one of these programs and have made at least one payment since January but have not yet completed their documentation. Without completed documentation, payments of $ 0 during forbearance will not count. One estimate suggests that there are around 150,000 borrowers in this category.
A letter and a phone call are rarely enough to get in touch with a borrower. To complicate matters, if the collector reaches a voicemail recording rather than a person but the recording does not specifically state the borrower’s name, due to privacy requirements, many PCAs will not leave a record. message.
This seems to deny thousands of borrowers the opportunity to take advantage of an incredible opportunity to rehabilitate their loan or obtain credit for a $ 0 rebate. The government got this one right in advance. Now is the time to put these plans to work. Let collectors contact borrowers. I’m not talking about garnishment. I’m not talking about requiring payment. I am talking about education and help with paperwork that could offer great relief to struggling consumers.
This question only exaggerates if the provisions of the CARES Act are extended.