Suspension of Federal Student Loan Payments
The new Coronavirus Aid, Relief, and Economic Security Act (“CARES”) provides financial relief for those borrowers of federal student loans. For those who are suffering financial hardships during this time of a global pandemic due to the COVID-19 virus, this provides a welcome recess from typically high student loan payments. Due to the fact that in most cases federal student loans are nondischargeable in bankruptcy, this may help several people facing monetary challenges and difficulties with their inability to work during this time.
Types of Student Loans
The CARES Act only applies to federal student loans, and not to any private student loans. Additionally, only Direct Loans made specifically from the Department of Education are covered. Some FFELs (Federal Family Education Loans) are covered if they are currently owned by the Department of Education. Therefore, Perkins loans, loans by commercial lenders, and other private student loans are not covered.
For those debtors that hold the correct type of federal student loan, the following relief is provided:
- All interest is waived through September 30, 2020.
- No payments are required during this period of time through September 30, 2020.
- If you made a payment during this period of time, the federal student loan servicer will refund it to you if you make a request.
- No automatic payments will be collected through September 30, 2020.
- No reports will be sent to credit reporting agencies that a debtor is not making their payments.
- All involuntary collections related to a student loan will be halted during this time, specifically wage garnishment, tax refund offset, administrative offset, or any other type of collection activity.
- For those debtors that are counting specific months towards loan forgiveness, these months will count towards that number.
- A debtor still has the right to continue to make payments.
Bankruptcy and Student Loans
In many cases, debtors who face serious financial challenges attempt to discharge their student loans within a bankruptcy. Section 523(a)(8) of the bankruptcy code addresses what types of debts are dischargeable and which ones are not. This section specifically states that student loans are not a dischargeable debt, unless very specific circumstances are present including undue hardship on the student loan holder or their dependents. This is a difficult test to meet, and visiting with a bankruptcy attorney can help you understand whether or not your situation would qualify to meet this test.
Let Us Help You Today
If you find yourself in a time of economic hardship and stress due to the unique conditions of our country due to the coronavirus, you may feel relieved at the hiatus on student loan payments the CARES Act provides to federal student loan borrowers. However, there may also be a situation where this relief is simply not enough to help you through your financial difficulty especially if you no longer have employment. If you are considering bankruptcy, contact us for a free consultation to see how an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton & Kaplan at 561-264-6850 can help you understand your legal rights.