The CARES Act suspended payment obligations from March 13, 2020, through September 30, 2020 (referred to as the “forbearance period”), and most federal student loans will have a zero percent interest rate during this forbearance period.
As the coronavirus continues to cause disruptions to our daily lives, many medical students and young physicians are increasingly concerned about their student loans. The typical medical student graduates with over $200,000 in debt and may have monthly payments well over $2,000. Below, we summarize the major student loan relief provisions enacted in response to the COVID-19 pandemic that are being offered to borrowers.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law and provides broad relief for federal student loan borrowers. Specifically, the CARES Act suspended payment obligations from March 13, 2020, through September 30, 2020 (referred to as the “forbearance period”), and most federal student loans will have a zero percent interest rate during this forbearance period.
Suspension of Payments During the Forbearance Period
All payments on federal student loans have automatically stopped since the enactment of the CARES Act. This includes auto-debit payments set up prior to March 27. Borrowers may still make payments during this period but are not required to do so. Any payments made during this period will be applied to the interest accrued up to March 13, 2020, then to the principal of the loan. Any payments that have been made during the forbearance period can be refunded as well.
There is also relief for young physicians who are currently in the Public Service Loan Forgiveness (PSLF) program or on an income-driven repayment (IDR) plan. If a borrower was in the PSLF prior to the forbearance period, had a Direct Loan (e.g., loan used to pay for graduate school), and works for a qualifying employer, the borrower will receive credit during the forbearance period as though the payments were made on time, even if no payments were made. Additionally, suspended payments will count toward a borrower’s IDR plan. Borrowers also do not need to recertify their income for their IDR plan during the forbearance period.
Zero Percent Interest During the Forbearance Period
Loans owned by the U.S. Department of Education (ED) qualify for zero percent interest during the forbearance period. ED loans that are likely subject to zero percent interest include:
- Defaulted and non-defaulted Direct Loans;
- Defaulted and non-defaulted Federal Family Education Loans (FFEL);
- Defaulted and non-defaulted Federal Perkins Loans; and
- Defaulted Health Education Assistance Loans (HEAL).
Although most loans are owned by ED, some FFEL and HEAL loans are owned by private lenders and some Perkins Loans may be owned by the educational institution. These loans are not eligible for the zero-interest benefit.
Borrowers can check whether their loan is owned by the ED by signing into their Federal Student Aid account. Borrowers can also contact their loan servicer to determine whether their loans are eligible for the temporary zero percent interest. Furthermore, the CARES Act does not apply to private student loans. Therefore, loans held by private lenders may not have a zero percent interest or temporary forbearance period during the COVID-19 pandemic.
We encourage members to consult the Federal Student Aid website for additional information. It contains detailed guidance on student loan obligations during the COVID-19 pandemic that may be helpful for current students as well as graduates.
ACOFP will continue to monitor for additional developments to federal student loan requirements during the COVID-19 pandemic and will periodically provide updates.