On Saturday, August 8, President Trump issued one executive order and three memoranda for purposes of providing a framework for continued relief for people suffering financial hardship as a result of the ongoing COVID-19 pandemic. The memoranda and executive order address student loan relief, the deferral of employee payroll tax obligations, the use of disaster relief funds to support unemployed individuals, and possible relief for those facing eviction or foreclosure.
1. Memorandum on Continued Student Loan Payment Relief
This Memorandum provides for deferment of student loan payments and the waiver of all interest which would otherwise accrue during the applicable period for student loans owned by the Department of Education. The applicable period during which payments are deferred and interest would otherwise accrue is between October 1, 2020 and December 31, 2020. The Memorandum effectively extends the student loan relief presently in effect through September 30, 2020 due to the CARES Act.
Not all federal student loans are owned by the Department of Education. For example, some loans extended through the Federal Family Education Loan Program and Federal Perkins loans may not be owned by the Department of Education. In instances when the Department of Education does not own a loan, a borrower would need to refinance the loan to take advantage of the payment deferment and interest waiver. In some cases, refinancing such a loan may be disadvantageous to the borrower.
Nothing in the Memorandum prohibits any borrower from continuing to make payments on a student loan at this time.
2. Memorandum Deferring Payroll Tax Obligations
This Memorandum allows for the deferral of payroll taxes (taxes for Social Security and Medicare) paid by employees from September 1, 2020 through December 31, 2020 on wages or compensation of any employee making less than $4,000 on a pre-tax basis during any bi-weekly pay period.
Deferred payroll tax obligations will be due following expiration of the Executive Order unless the Executive Order is extended or Congress passes legislation further deferring or forgiving the deferred payroll taxes.
3. Memorandum Authorizing Other Needs
The purpose of this Memorandum is to provide a framework for the use of disaster funds to support unemployed individuals. Any governor may request lost wages assistance from the federal government under the terms of the Memorandum.
Pursuant to the Memorandum, eligible claimants who qualify for state unemployment insurance compensation, or other similar types of benefits, in an amount of at least $100 per week for the week ending August 1, 2020 are eligible for an additional payment of $400 per week throughout the duration of time that the claimant remains eligible for benefits. The assistance program provided by the Memorandum is available until the earlier of the first week of December or the date upon which the funds being used for the supplemental unemployment benefits reach a defined floor. Consistent with applicable federal law, the federal government will pay $300 of the additional payment with the state paying the additional $100. The $400 payment is reserved for those individuals who certify that they are unemployed due to COVID-19.
There are multiple reasons this Memorandum may prove to be of limited benefit. First, while the Memorandum allows states to use CARES Act funds to pay the state’s contribution to the supplemental benefit, many states, including Michigan, have sought to use those funds for other purposes as the State seeks to fight the effects of COVID-19 and an estimated $6.2 million budget shortfall for the current and upcoming fiscal years. Second, Michigan’s unemployment compensation fund has already fallen below the minimum threshold defined by law which has automatically triggered an unemployment insurance tax increase for all employers in 2021 to provide future unemployment benefits. As a result, Michigan may lack sufficient funds in its unemployment compensation fund at this time to pay the portion of the supplemental payment which is an obligation of the State. Third, it is unclear if Michigan’s unemployment compensation system currently has the structural capacity to provide the supplemental payment when the supplemental portion is funded by two different sources. Fourth, the supplemental payment is required to be administered by the governor of each state and Governor Whitmer issued a statement on Sunday, August 9, criticizing the manner in which this relief program is structured.
Thus, it is unclear at this time whether Michigan has the capacity or willingness to participate in this program for enhanced unemployment benefits.
Additionally, the Memorandum provides that the program will terminate upon the enactment of legislation which provides supplemental Federal unemployment compensation, meaning Congress may act to enact a different program than the program contemplated by the Memorandum.
A further consideration regarding this program is that the Stafford Act, which is the federal law which authorizes the President to extend emergency unemployment assistance to victims of disasters, states that it applies only if individuals are not receiving any other unemployment assistance. The Memorandum thus relies upon a different section of the Stafford Act which allows for the President to provide households aid to address “other necessary expenses or serious needs resulting from the major disaster” as its foundation for providing supplemental unemployment assistance. It is unclear if this provision grants the President authority for the contemplated supplemental unemployment payments program and it is possible that legal challenges will result which prevent the program from being implemented.
4. Executive Order Providing Assistance to Renters and Homeowners
This Executive Order directs various administration officials to review and identify relief which may be made available to homeowners and renters to respond to the public health risks posed by evictions and foreclosures. Specifically, the order includes the following four directives:
(a) The Secretary of Health and Human Services and Director of the CDC are to consider whether any measures temporarily halting residential evictions of tenants failing to pay rent are necessary to prevent the further spread of COVID-19;
(b) The Secretary of the Treasury and Secretary of Housing and Urban Development are directed to identify all available Federal funds to provide temporary financial assistance to renters and homeowners who are struggling to meet their monthly rental or mortgage obligations as a result of COVID-19;
(c) The Secretary of Housing and Urban Development is directed to take action to promote the ability of renters and homeowners to avoid eviction or foreclosure resulting from financial hardships caused by COVID-19;
(d) The Director of the Fair Housing Finance Agency is directed, in consultation with the Secretary of Treasury, to review all authorities and resources which may be used to prevent evictions and foreclosures resulting from hardships caused by COVID-19.
The extent to which relief is made available to individuals at risk of foreclosure or eviction as a result of hardships caused by COVID-19 will become clearer once the applicable agencies have completed the review directed by this Executive Order.
As discussed above, at the present time, significant uncertainty remains regarding the manner in which the relief contemplated by the executive orders and memorandums will be delivered. For further information, contact your Mika Meyers’ attorney at 616-632-8000.