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Covid-19 and Student Loans – Update

Today, March 25, 2020, the US Education Department (USED) rolled out protections for defaulted loans. It’s quite simple. No more collection activity on defaulted loans held by USED. As I said in my previous post on this subject, loans held by USED are Direct Loans and some defaulted FFEL loans that have been turned over to USED. Any defaulted FFEL loans still with a guarantee agency, like ECMC, Trellis, USAF or others, is not covered by what I’m about to share.

The following collection conducts ceases:

  • Wage garnishment
  • Social security offset
  • Tax refund offset
  • Collection calls and letters attempting to obtain a payment

There’s a catch of course.

Wage Garnishment

If you have a wage garnishment, YOU, the victim, must contact your employer to tell them to stop the garnishment. That’s going to be an interesting conversation. Do you have proof that your loan falls under this provision? If not, and they stop it incorrectly, your employer could get a nasty letter from the guarantee agency which would make you look bad.

Social Security

No catch here. It should occur automatically.

Tax Refund

If your refund was issued after March 13th and was intercepted, you’ll get it back. If it was taken prior to March 13th, you may not get anything back. If you haven’t filed your taxes for fear of intercept, you’re safe! File ASAP and get your money!

Collection Calls and Letter

No more attempts to collect, for now. However, if you’re rehabilitating your loan, trying to get out of default, you can suspend your payments without penalty. BUT, this also delays when you’re out of default. This doesn’t reduce the number of payments to get out of default. Rehabilitation requires 9 monthly payments. You still need to make 9 monthly payments. If you suspend, it will pick up where you left off when this all clears up. If you are contemplating suspending payments because your income has been reduced, you can contact the collector and ask them to recompute your payment based. But remember, the collectors are also running on skeleton crews, so this may be more difficult than it should be. Either way, if you want to suspend or recalculate, you have to contact the collector.

Moving Forward

Now is a great time to get out of default, especially if your finances are suffering. Your rehabilitation payment is based on your current income (or lack thereof). You could get a payment of just $5 a month. Or simply consolidate and be out of default in 30-90 days. Once out of default, payments can be based on income. If your situation hasn’t improved once out of default, you could have a payment as low as $0! You can hear me explain these payment plans in this podcast (warning, I sing. Sorry).

If you’d like to hear me discuss all of the Covid-19 student loan responses as of March 25, 2020, check out my video.

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