PSLF in the Time of Coronavirus

The rules for student loan borrowers hoping for Public Service Loan Forgiveness are changing rapidly, and information even on Education Department and CFPB web sites is confusing and rapidly outdated. The CARES Act, section 3513, signed into law on March 27, requires the Secretary of Education to “suspend all payments due” for federally-held student loans until September 30. The same section provides that interest shall not accrue on any loan for which payments are suspended. The law supersedes the prior Education Department administrative action suspending interest for 60 days. Of special relevance to PSLF, the third subsection provides that “The Secretary shall deem each month for which a loan payment was suspended under this section as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or loan rehabilitation program.”

The most important advice for borrowers is still to 1) be sure you are in a federal direct loan, using a direct consolidation loan if necessary to get out of FFEL, 2) get on an income-dependent repayment plan and 3) apply to have your IDR monthly payment recalculated now, not next year, if you have any job loss or drop in income.

“Suspending” payments is unfortunate language because it is not an existing repayment status. USED will probably interpret this to mean “forbearance,” rather than “deferment” but no announcement has yet been made. The third possibility is to treat all borrowers as if they were in income-dependent repayment (IDR) with a zero payment. The law also mandates zero interest for the next 6 months, and borrowers report that they are already seeing their interest rate changed to 0% on line. As a practical matter, forbearance with zero interest is similar to deferment or IDR with zero payment. However, months in forbearance would normally not count towards the 120 months required to get PSLF forgiveness, nor for that matter for the 20 or 25 years of payments required for forgiveness at for borrowers in income-dependent payment plans. Because the CARES act mandates that months in “suspension” count, the effect should be more like IDR with zero payment.

The good news is that 3513(c) effectively supersedes the 15-day rule, so early and late payments won't matter for the next 6 months.

The bad news is that a monthly payment does not count towards the 120 required unless the borrower is employed full-time during that month. The CARES Act language could be read to supersede that requirement. Unfortunately my guess is that USED will read 3513(c) to suspend the payment requirement but not the full-time employment requirement. As a practical matter, borrowers just need their employer to certify that they were a full-time employee during the relevant time period, which should include at least paid sick leave. Public servants on unpaid leave may be left out in the cold, as far as PSLF payment counting. USED does have the power under the prior pandemic legislation to waive statutory and regulatory requirements, and we’ll see how generously they choose to interpret this provision.

Borrowers in IDR payment plans are entitled to have their servicer recalculate their monthly payment based on current income if they lose a job or have reduced income. Payment “suspension” for those borrowers could create additional problems. If all federal loans are placed into administrative forbearance, borrowers whose IDR payment is based on job income may not act promptly to have their IDR payment recalculated based on current income.

If this advice is wrong or you have better information or ideas for PSLF borrowers, please comment.