Federal Student Loan Payment Relief During The Pandemic

The Coronavirus Aid, Relief and Economic Security (CARES) Act was created to provide financial relief for people impacted by COVID-19.  If you have federal student loans, you are eligible for payment relief and 0% interest through the end of September.

Temporary Suspension of Payments

With many suffering job transitions or loss during the pandemic, the CARES Act administrative forbearance, or temporary suspension of federal tuition loan payments, is a tremendous subsidy.  Administrative forbearance will last from March 13, 2020 through September 30, 2020. Any auto payments in place will be suspended automatically during this period.

If you want to continue making payments, contact your loan service provider to opt out of the administrative forbearance. You can also make manual payments by visiting your loan service provider’s website. Since you are not required to make payments during the administrative forbearance, you are able to make payments of less than your minimum payment amount.

During the forbearance period, interest will not accrue, and your credit history will not show the payment lull.

Types of Loans Offering Relief

The CARES Act provisions for federal student loan relief are specific to these types of loans:

  • Direct Loans owned by the US Department of Education
  • Federal Family Education Loans (FFEL) owned by the US Department of Education (DOE)
  • Federal Perkins Loans owned by the US Department of Education
  • Defaulted Health Education Assistance Loans owned by the US Department of Education

It is important to note that CARES Act provisions will not apply to FFEL and Federal Perkins Loans owned by a third-party lender outside of the DOE.

Refinancing Consideration Outside of CARES Act Provisions

If you have private student loans or student loans not owned by the DOE, you can still reduce your interest rate, reduce your payment or some combination of the two.

With current interest rates at or near all-time lows, it is a good time to investigate refinancing your private student loans with a third party like SoFi, Earnest or a handful of other providers.

However, refinancing federal student loans covered by the CARES Act is not needed with 0% interest rates in effect through September 30 and the possibility of relief being extended past September 30. These student loans can always be refinanced separately or refinanced with your private student loans at a later date.

If you are a high-income earner looking for additional guidance in debt management, investment management, tax and estate planning or asset allocation, the advisors at Budros, Ruhlin & Roe are here to help. Student loan repayment should not prevent you from having confidence in building your financial future.  Our GROWwithBRR program can help turn uncertainty into assurance in your wealth strategies.

Kevin Wuebker, CFP®

Senior Wealth Manager

 

More PPP Legislation Changes, Called The Paycheck Protection Flexibility Act

Yet another round of PPP legislation changes arrived in early June. 

There were a few different pieces of pending legislation circulating to address shortfalls in the existing program. The U.S. Senate recently passed the House bill that would make significant changes to the PPP loan program, called the Paycheck Protection Flexibility Act (“Act”). It is designed to help borrowers by extending the period to spend the funds and allow more spending on non-payroll costs. The end result is likely to increase the probability of forgiveness of the PPP loan.

Here is a summary of the most important changes from the Act:

Extended Covered Period

Borrowers who received a PPP loan prior to enactment of the Act can now choose whether to spend their funds over a covered period of 24 weeks or the original eight weeks. New borrowers will have a 24-week covered period, but the covered period cannot extend beyond December 31, 2020. This obviously gives borrowers more time to spend the funds appropriately, but many borrowers are in the later weeks of the eight-week covered period and have already spent or have plans on spending the funds.

Reduction in Payroll Cost Percentage

The Act reduces the percentage amount a borrower must spend on payroll costs from 75% to 60%. Recall that this percentage requirement initially began with the SBA’s guidance but now it is statutory. More importantly, the 60% requirement appears to be a cliff event for a borrower, meaning that if 60% of the loan proceeds are not spent on payroll costs, then none of the loan will be forgiven. However, it is possible that later guidance or technical corrections may change this result and make it a proportional rate of forgiveness.

New Deadline to Restore Workforce

Previously, borrowers had a safe harbor to restore employee levels or Full Time Equivalents (FTEs) prior to June 30 to avoid any reduction in forgiveness. The Act allows borrowers to use the 24-week covered period (no later than Dec. 31, 2020) to restore their FTEs.

New Exceptions for FTE Reductions

he Act allows a borrower a couple new exceptions from the FTE requirement similar to the previous exceptions regarding voluntary terminations, termination for cause or rejection of a good faith offer to return. The two new exceptions are if the borrower 1) could not find qualified employees or 2) was unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.

Loan Terms Extended

Borrowers and their lender can agree to extend the term of the loan from two years to five years. The interest rate remains at 1%. The time when interest and principal begin has be extended until after the forgiveness determination has been made by the lender.

Delay of Employment Taxes

The Cares Act permitted employers to defer half of the employer portion of employment taxes on wages in 2020 until the end of 2021 and 2022. However, the Cares Act prohibited PPP borrowers from benefiting from this deferral. The Act allows PPP borrowers to take advantage of this employment tax deferral.

Obviously, these new provisions will need some additional interpretation resulting in additional guidance. We will continue to keep you informed of any major changes and clarifications. If you have any questions regarding the PPP Loan program, please do not hesitate to contact me or your BRR team.

John Schuman, JD, CFP®, CPA(Inactive)

Chief Planning Officer, Chief Compliance Officer, Co-CEO