The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act, or Act) provides economic relief to impacted consumers and borrowers, including student loan borrowers with outstanding federal student debt. The Act's student loan relief provisions will require federal student loan servicers and collectors to review and adapt their practices and policies to comply with the new law.
Section 3513 of the Act provides temporary relief to federal student loan borrowers through a mandated "suspension" or deferral of regularly scheduled loan payments and of accrued interest until September 30, 2020 (the "Applicable Period"). The deferral is granted without penalty and regardless of whether such relief is requested. For purposes of reporting to consumer reporting agencies, each suspended payment will be "treated as if it were a regularly scheduled payment made by a borrower." No later than 15 days after the date of enactment, the Secretary of Education will notify borrowers that loan payment obligations have been suspended and interest is waived. Similar notification obligations apply to the period when payment obligations resume; however, the Secretary's notice will also inform borrowers of "the option to enroll in income-driven repayment."
The Act's student loan relief provisions also extend to borrowers in collections. The CARES Act suspends all involuntary student loan collections through the end of the Applicable Period. Suspended collections activities include wage garnishment, tax reduction by the amount of debt, reduction of any other federal benefit payment by an administrative offset, and any other involuntary collection activity. The suspension of involuntary collection would not appear to apply to voluntary collections efforts, such as letters and calls from a servicer or collections agent.
In view of these changes, servicers and collectors of federal student loans must act quickly to integrate these changes into their systems and train employees on the temporary rules. For borrowers with questions, servicers and collectors should develop standardized scripts and responses to ensure that all borrowers receive accurate information. Servicers and collectors should review monitoring and compliance procedures for consumer-facing employees to ensure they are relaying accurate and necessary information to borrowers. Similarly, outgoing communications and materials should be reviewed and updated to include appropriate language about the CARES Act.
Notwithstanding the above requirements, it is essential that servicers and collectors review any potential modifications to practices or policies for potential violations of Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) prohibitions under Dodd-Frank. To that end, servicers should verify that eligible student borrower accounts accurately reflect a monthly payment of $0 and do not accrue interest during the Applicable Period. For students enrolled in autopay or automatic debit plans, servicers should suspend scheduled debits or payments, and ensure no late fees or penalties are charged.
Servicers and collectors must be vigilant of changes at the state level as well. Several states have either begun implementing their own student loan relief programs or made public their intent to promulgate rules and regulations that will impact servicing and collection. The State of New York, for example, temporarily halted the collection of student loan debt owed to the State, through at least April 15, 2020.
Relief measures, at both the federal and state level, are intended to support student loan borrowers during this period of financial stress and economic uncertainty. Servicers and collectors that handle federal student loans should be prepared to make any necessary changes to their policies and practices to come into compliance with new laws, and with those on the horizon.