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ALERT: Student Loan Forbearance in the Wake of COVID-19

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on student loans and a recently announced interest waivers.

March 23, 2020
ALERT: Student Loan Forbearance in the Wake of COVID-19
by Carey S. Smith, Associate

shutterstock 398418100On March 13, 2020 President Trump announced that interest would be waived on federal student loans. This interest waiver applies to loans owned by the U.S. Department of Education, including Direct loans, Federal Perkins loans, and Federal Family Education loans (FEEL) held by the Education Department. Contact your loan servicer to verify if your loans are eligible for interest waiver or administrative forbearance. Your loan servicer is who you make your monthly loan payment to, if you are unsure who your loan servicer is log into your account at StudentAid.gov/login or by calling 1 (800) 433-3243 or 1 (800) 730-8913 for the hearing impaired. For FEEL loans not owned by the education department student aid recommends consolidating into a Direct Consolidation loan to allow the borrower to qualify for interest waiver or administrative forbearance. Federal student loan borrowers can qualify for administrative forbearance giving them a temporary stop on student loan payments. The Education Department will automatically waive interest for qualifying loans, no authorization is required. Qualifying loans already in forbearance will stop accruing interest on March 13, 2020 for at least 60 days.

Currently, payments for qualifying loans may be suspended for up to 60 days by electing for administrative forbearance through your loan servicer. If you elect to keep making payments during this time, because of the interest waiver, payments will be applied to principle unless loan interest accrued prior to March 13, 2020. If you accrued interest before March 13, 202 payments will be applied to interest and then principle. Administrative forbearance allows the qualifying loan holder to stop making payments without becoming delinquent, and for this reason administrative forbearance will not have an adverse impact on your credit score. Administrative forbearance, unlike interest waiver, is not automatic; you will need to contact your loan servicer and request that your qualifying loans are placed on administrative forbearance. If you are already delinquent by more than 31 days on qualifying loan payments as of March 13, 2020 you will be automatically enrolled in administrative loan forbearance. Enrolling loans in administrative forbearance will cancel automatic debit payments, when the forbearance period ends you will need to continue making payments, if you wish to resume making payments by auto-debit you will have to reestablish auto-debit for your account with your loan servicer. You should verify with your loan servicer if you will lose any benefits associated with setting up auto-debit for your qualifying loans. There is no penalty for making partial payments less than your normal monthly payments while you are in administrative forbearance.

Those seeking loan forgiveness through Public Service Loan Forgiveness or Income-Driven Repayment should consider that if you elect to enroll your loans in administrative forbearance, the months that you are not required to make payments will not count towards your required number of payments, these months will be tolled.

Neither the waiver or interest nor electing for administrative forbearance will lower your loan payments. As always, if your income has significantly changed, you should contact your loan provider or apply to have your Income-Driven repayments adjusted to reflect your current income at StudentAid.gov/idr. If you have lost employment or have no current income, you should contact your loan servicer immediately.

The 60-day period for administrative forbearance and loan waiver may be extended. If the time period is extended your loan servicer will contact you. When an official end date to interest waiver is set that info will be reflected at https://studentaid.gov/announcements-events/coronavirus This page also contains additional links for current students and general links regarding COVID-19. When payments are set to resume, you will be contacted by your loan servicer to remind you to make payments. Interest accrued prior to March 13, 2020 will capitalize when the interest waiver and administrative forbearance period ends.

Attorneys at Lyons Gaddis are available to advise you in relation to these loan programs and other COVID-19 related matters impacting your current and future business operations.

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