Student-Loan Payment Extension: Who's Eligible?

Summary

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WSJ Your Money Briefing: “Student-Loan Payment Extension: Who's Eligible?”

Host: J.R. Whalen
Guest: Ann Tergeson, WSJ Personal Finance Reporter
Date: August 17, 2020

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Overview

This episode of WSJ Your Money Briefing centers on the extension of federal student loan payment relief in the wake of the COVID-19 pandemic, prompted by an executive order from President Trump. Personal finance reporter Ann Tergeson joins host J.R. Whalen to clarify who is eligible for the extended relief, what types of loans are covered, and the financial implications for borrowers—including important considerations for anyone in loan forgiveness programs.

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Key Discussion Points & Insights

1. Background and Legislative Context

• Since April 2020, student loan borrowers could suspend payments due to the pandemic.
• President Trump’s executive order aims to extend that grace period through the end of 2020.
• Legal authority and execution of this extension remain murky pending Congressional action and Department of Education guidance.

Quote:
“There’s broad bipartisan support for continued student loan payment relief, so... there is really nobody who’s going to file a lawsuit saying, ‘You can’t do this.’”
— Ann Tergeson, 02:35

2. Who Is Eligible?

• Eligible Loans: Federal loans owned by the Department of Education (the vast majority).
• Ineligible Loans: Generally, private loans and some older federal loans issued before 2010 under discontinued programs.

Quote:
“So, federal loans that are owned by the Department of Education are eligible. That’s always been the case going back to March.”
— Ann Tergeson, 03:59

3. How Does the Extension Work?

• Currently unclear if the payment suspension extension will be automatic or require borrower action (application).
• Industry expectation leans toward automatic extension for borrowers already receiving suspensions, but official guidance is pending.

Quote:
“People in the industry are quite optimistic that it’s going to be an automatic thing... But we won’t know until we get some kind of guidance from the Department of Education.”
— Ann Tergeson, 03:17

4. Key Exceptions and Complications

• Hardship Suspension Limits: Borrowers who have already exhausted their maximum three-year hardship deferment might not be eligible for further relief under the executive order.
• Borrowers in Default: May not qualify for the extended relief.
• Public Service Loan Forgiveness (PSLF): Uncertainty exists whether payments suspended under the executive order will count toward the 10-year forgiveness requirement.

Quote:
“If you’re in the Public Service Loan Forgiveness Program... it’s not clear that the suspended payments would count towards the 10 years of required payments...”
— Ann Tergeson, 04:35

5. Financial Strategy: Should You Still Pay?

• If you lack an emergency fund, consider suspending payments to redirect cash into savings.
• If you have high-interest debt (e.g., credit cards), focus on repaying that first.
• If you have a strong emergency fund and no other high-rate debts, continuing student loan payments now can reduce principal faster—a smart move as no interest accrues during the suspension.

Quote:
“If you don’t have an emergency fund, you should probably put your payments on hold and use the money you would have paid towards your student loans to build up your emergency fund.... it’s really important to have an emergency fund.”
— Ann Tergeson, 05:46

6. Impacts on Loan Forgiveness Programs

• For borrowers in income-driven repayment plans, suspended payments during this relief period are expected to count toward the forgiveness timeline.
• For Public Service Loan Forgiveness, the status of suspended payments counting toward the program’s 10-year benchmark is unresolved; borrowers may need to make additional payments if the three months don’t count.

Quote:
“If they don’t end up counting ... it just may mean that you have to make three extra payments at the end of the 10-year period in order to have your debt forgiven.”
— Ann Tergeson, 07:47

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Notable Quotes & Memorable Moments

• Ann Tergeson on Congressional Involvement:
  “If Congress does that [passes a relief package], then some student loan relief is very likely to be in that package.” (01:55)

• On Guidance Still Needed:
  “The Department of Education really needs to weigh in on a lot of these details.” (05:34)

• Financial Planning Wisdom:
  “I think there’s one thing this crisis has taught everybody about their money... it’s really important to have an emergency fund.” (06:02)

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Important Timestamps

• 00:36: Introduction to episode and issue of student loan payment suspension.
• 01:55: Discussion on legislative uncertainty and potential outcomes.
• 03:17: Clarity on whether relief extension will be automatic or require action.
• 03:59: Types of loans that qualify for relief.
• 04:35: Exceptions—hardship suspensions, PSLF, defaulted loans.
• 05:46: Advice on whether borrowers should voluntarily keep paying.
• 07:01: Specifics for those in loan forgiveness programs.

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Conclusion

This episode provides a concise but comprehensive overview of the important changes and uncertainties surrounding federal student loan payment suspensions due to the pandemic. Borrowers are urged to remain alert for Department of Education guidance, carefully assess their financial situation before making payments, and note the unresolved questions about forgiveness programs. The conversation reflects the evolving nature of relief efforts and underscores the importance of being proactive with personal finances during uncertain times.

Transcript

[Small Business Owner]

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[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Consumer Advocacy Group Representative]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whalen]

Here's yous Money briefing for Monday, August 17th. I'm J.R. whalen for the Wall Street Journal. Student loan borrowers facing hard times because of the pandemic have been able to suspend their loan payments since April. And an executive order signed by President Trump earlier this month would extend the grace period through the end of the year. But it's not that simple.

[Ann Tergeson]

It's premised on a provision within the law that enables people to apply for relief from making payments due to economic hardship. Right now, we don't know whether people are going to have to do something or whether it's going to be automatic.

[J.R. Whalen]

Our personal finance reporter Ann Tergeson will answer some important questions about the order, like who'd be eligible and why you might want to suspend your payments even if you're able to pay. That's after the break. Suspending student loan payments can free up some much needed cash, but a plan to let borrowers put payments on hold through the end of the year has raised a lot of questions. Let's bring in our personal finance reporter Ann Tergerson to clear some things up. So, first of all, Ann, the executive order signed earlier this month, it stirred up some debate over whether President Trump has the legal authority to extend the relief before the borrowers just want to know what's this going to do to my bank account? Is the relief likely to go through?

[Ann Tergeson]

Well, so there's a lot of moving parts here. But basically, if Congress ends up passing a coronavirus relief package, which even though they left on vacation and didn't come to an agreement, a lot of people still feel like there's a chance that that may happen. So if Congress does that, then some student loan relief is very likely to be in that package. There's broad bipartisan support for continu student loan payment relief. So the question, though is if Congress doesn't act and put in a relief package, a continued relief package, then this executive order would stand. I think, you know, there are some who believe that President Trump doesn't have the authority to do it. But the White House citing, you know, a clause in the Higher Education act, says that they do have the right to do it. But more to the point, because there is broad bipartisan agreement and support for continued student loan payment relief, there's really nobody who's going to file a lawsuit saying, you know, to the administration, you can't do this. We don't want you to do this. In fact, you know, I think it's quite likely that there will be some kind of continued student loan relief, whether it's due to this executive action or congressional action.

[J.R. Whalen]

Okay, so assuming it all goes through, do borrowers have to do anything to have their payment relief extended?

[Ann Tergeson]

Well, so here's the problem with the executive action is that it's premised on a provision within the law that enables people to apply for, for relief from making payments due to economic hardship. Right now we don't know whether people are going to have to do something or whether it's going to be automatic. People in the industry are quite optimistic that it's going to be an automatic thing and that people who are currently receiving suspended payments, the right to suspend their payments, are just going to automatically continue in that course. But we won't know until we get some kind of guidance from the Department of Education.

[J.R. Whalen]

So what kinds of loans are eligible for the extended relief.

[Ann Tergeson]

So federal loans that are owned by the Department of Education are eligible. And that has been the case going back to March. That's when we first saw Congress act and suspend student loan payment obligations. So it's always been federal loans that are owned by the Department of Education. That happens to be a huge majority of the federal loan market. So unless you have old loans that were made under a program that was discontinued in 2010, you can be pretty sure that your loans are included.

[J.R. Whalen]

Okay. And other types of loans that are not eligible.

[Ann Tergeson]

It gets a little complicated. Assuming we go forward with this executive action, it's not clear that certain groups of people would still be eligible for that suspension. For example, if you have already taken advantage of hardship, of suspending payments due to economic hardship and you've used up a full three year allotment of those suspensions, there's some question as to whether you would still be eligible for further relief. If you're in the Public Service Loan Forgiveness Program, you would be eligible to take advantage of the suspension, but it's not clear that the suspended payments would count towards the 10 years of required payments until you can have your balance forgiven. So there are a lot of questions like this. And if you're in default, you may not be eligible for the suspension under the executive order, which is designed to cover from October to December. So the Department of Education really needs to weigh in on a lot of these details.

[J.R. Whalen]

All right, so some questions still to be answered there. You know, let me ask you this. If it turns out that people can make payments during the suspension period, should they do that?

[Ann Tergeson]

So it really just depends. I mean, if you can, if you think you can afford to make your regular payment, you really need to then kind of think further. So if you do you have an emergency fund, if you don't have an emergency fund, you should probably put your payments on hold and use the money you would have paid towards your student loans to build up your emergency fund. I think there's one thing this crisis has taught everybody about their money is that it's really important to have an emergency fund. And if you don't have an adequate one, take the time to build that up. Also, another reason why you might want to suspend, even if you can continue to financially make those payments, is if you have other forms of debt with a higher interest rate. In that case, it's probably a good idea to suspend your student loans and say you have high interest rate debt for like on a credit card, you can pay off that credit card debt and you'll be better off and then you can resume your student loan payments when you have to. But that said, if you say you already have an emergency fund, you don't have other forms of higher interest rate debt and you can afford to do it, it's a good opportunity to do it because those payments all go directly to principal, which enables you to pay your debt off faster.

[J.R. Whalen]

And then if somebody's in a loan forgiveness program, how will they be affected?

[Ann Tergeson]

So here again we have some degree of uncertainty, but it looks like under the executive order, it looks like if you are in an income driven repayment plan and these, you know, these are plans that enable you to pay off your debt, your payment obligation is tied to your income. If you're in that type of a plan, the suspended payments would actually count towards the number of years required for your loan to be forgiven. Except for possibly if you're in the Public Service Loan Forgiveness program, which is a 10 year program for people who have public service jobs. In that case, it's not clear you can still suspend the payments from October to December. It's just not clear whether those suspended payments would actually count towards the 10 years of payments that you need to make to have your loan forgiven. If they don't end up counting. And that's something we're waiting for the Education Department to tell us. You can still suspend your payments. It just may mean that you have to make three extra payments at the end of the 10 year period in order to have your debt forgiven.

[J.R. Whalen]

All right. That's Wall Street Journal reporter Ann Tergeson. Anne, thanks for coming on the show.

[Small Business Owner]

You're welcome.

[J.R. Whalen]

And that's your money briefing. I'm J.R. whelan for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees that I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore. They deserve it, don't they?

[Consumer Advocacy Group Representative]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.