The U.S. Department of Education has extended the COVID-19 federal student loan interest and fee exemption to all non-performing loans, suspending collection of payments that affect over 1 million borrowers nationwide.
The decision, announced in a press release earlier this week, is part of the Federal Family Education Loan Program, which will help those borrowers saddled with debt during the ongoing pandemic, a Department of Energy spokesman said.
“At a time when many student loan borrowers are confronted with economic uncertainty, we are making sure that the assistance already provided to borrowers under the Department’s loans is available to more borrowers who need the same help so they can focus on meeting their basic needs, The prepared statement says that the Minister of Education Miguel Cardona. “Our goal is to enable these borrowers, who are struggling with default, to receive the same protections that were previously available to tens of millions of other borrowers to help weather the uncertainty surrounding the pandemic.”
Under the FFEL, private lenders provided federal student loans to students, and guarantee agencies – a public or private nonprofit agency that helps run the program – insured the funds, which were in turn reinsured by the federal government. After these loans become defaulted, they are transferred from the lender to the guarantee agency. While some FFEL loans are owned by the Department because they were acquired by the federal government during the financial crisis more than a decade ago, many others remain with private individuals.
The Department will expand the 0 percent interest rate and suspend collection activities for borrowers who defaulted on a private loan under the FFEL program, thus protecting more than 800,000 borrowers who were at risk of having their federal taxes forfeited to pay off an overdue loan. This relief will be retroactive until March 13, 2020, when the country’s COVID-19 emergency began.
The department will work to automatically refund any tax refunds or wages received in the past year, the department added. Borrowers who have made voluntary payments on any of these loans during the past year will be able to request a refund of these amounts. The department will also work with guarantee agencies that hold outstanding FFEL loans to establish a zero interest rate for these borrowers.
In addition, any of these loans, which were defaulted on March 13, 2020, will return their good reputation. The underwriting agencies that hold these loans will turn them over to the Department and require credit bureaus to remove the default record.
The Department of Energy’s action builds on steps already taken by the Biden-Harris administration to help borrowers of federal student loans. These steps include the suspension of interest, payment and interest collection activities on student loans for tens of millions of borrowers with loans held by the Department until September 30, 2021.
The Department also requested a waiver from the Small Business Administration so that individuals – despite not currently or previously fulfilling federal student loans or previously not making payments – remain eligible for a payroll protection loan and related forgiveness of loans. According to the wording in a press statement, the waiver immediately helped nearly 30,000 small business owners.