In this season of virtual graduations, disappointing teleconference congratulations, and looming financial pressures, it seems particularly timely to give new graduates a sense of what their student loan obligations might be in the coming months.
On March 27, President Donald Trump signed the CARES Act into law. This act was intended to provide fast economic assistance in the form of stimulus checks and other financial relief options to help American taxpayers face the unprecedented struggles associated with the global health crisis brought on by COVID-19.
While there has been a wealth of information about the economic relief provided to small businesses and taxpayers, guidance on the ways the CARES Act provides relief to student loan borrowers has been less clear.
First, and perhaps most critical for new graduates, is that there will be no payments expected from March 13 through Sept. 30 for federal student loan borrowers. During this period, the interest rates on these loans will be set at 0 percent. Payments should automatically stop at this time for people whose loans were in repayment.
If auto-debit payments have been made during this time, borrowers may contact their loan servicer to ensure their loans meet the criteria and to request a retroactive administrative forbearance. This will provide you with a refund of payments made and back-date your forbearance to the March date. Direct Loans, FFEL Loans, Perkins Loans and HEAL Loans, and other federally backed loans will likely qualify whether they were in default or good standing.
There is little incentive to continue payments during this financially stressful time, which may give some graduates reason to hope. For instance, if a graduate is enrolled in the Public Service Loan Forgiveness (PSLF) plan and on a qualifying repayment plan prior to the March forbearance date, and worked full-time for a qualifying employer during the forbearance, they should expect to receive credit toward PSLF for the period of payment suspension as though they made on-time monthly payments.
However, for Maine graduates who are taking part in the Opportunity Maine Tax Credit (OMTC), continued payments may be necessary in order to continue to qualify for the tax credit. Because the automatic temporary forbearance of loan payments is optional, graduates may elect to opt out in order to continue to qualify for the OMTC. Graduates who do not opt out of this relief will have their loans placed in administrative forbearance and will show an amount due of $0. This will make any payments ineligible for the tax credit. Questions regarding the OMTC should be directed to the Maine Revenue Services.
Another key point of the CARES Act is that negative credit reporting for eligible federal student loans will be temporarily suspended. This may seem like a ridiculous time to worry about a credit score, but the economy and our job prospects will rebound. Credit scores affect our ability to secure the most basic and important things: mortgage rates, credit card approvals, apartment requests or even a new job.
A moratorium on negative reports means if graduates in repayment are experiencing financial difficulty and miss any of their payments, the Department of Education will report missed payments as though they were made on time. Credit scores will be protected. Equifax, TransUnion and Experian, the three major credit bureaus, are participating and are offering free weekly online credit reports through April 2021 so that student borrowers and all consumers can keep track of their financial future. It is important to remember that this applies specifically to federal student loans.
Graduates all over the country are struggling to understand their options and make their payments during the coronavirus pandemic. If you have questions about your payments, income-driven repayment plans, recertifications for PSFL or OMTC, Mainers can contact the Student Loan Ombudsman in the Bureau of Consumer Credit Protection.
Laura Cyr is the executive dIrector of the Kennebec Valley Council of Governments. Her research focuses on student loan debt relief and recently evaluated the Opportunity Maine Tax Credit. This column reflects her views and expertise and does not speak on behalf of KVCOG. She is a member of the Maine chapter of the national Scholars Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear in the BDN every other week.