CARES Act and Student Loans Changes
Amongst the other financial benefits during the coronavirus emergency, the CARES Act offers multiple benefits for your student loans, including the following through September 30, 2020:
No federal student loan payment required;
No interest accruing on federal student loans; and
No garnishment of wages, Social Security and tax refunds for student loan debt collection.
Pausing your federal student loan payments will still result you in getting monthly payment “credit” for public service loan forgiveness (despite what your student loan servicer may tell you)
If you want to know how to pay student loans during Coronavirus, you’re not alone. We hope the FAQ below will provide you some guidance.
Part of this article sourced from a New York Times article, “F.A.Q. on Stimulus Checks, Unemployment and the Coronavirus Plan.”
Q: The federal government has already waived two months of payments and interest for many federal student loan borrowers. Is there a bigger break now with the new bill?
Yes. Until September 30, there will be automatic payment suspensions for any student loan held by the federal government. It is hard to contact many of the loan servicers right now, so check your account online in the coming weeks. Once you are logged in, look for the current amount due. There, you should be able to see if the servicer has reset its billing systems so that you are showing no payment due.
Q: How do I know if my loan is eligible?
If you’ve borrowed money from the federal government — a so-called direct loan — in the past 10 years, you’re definitely eligible. According to the Institute for College Access & Success, 90 percent of loans (in dollar terms) will be eligible.
Older Federal Family Educational Loans (F.F.E.L.) that the U.S. Department of Education does not own are not eligible, nor are Perkins loans, loans from state agencies, or loans from private lenders like Discover, Sallie Mae and Wells Fargo. The holders of all those kinds of loans may be offering their own assistance programs. If you’re not sure what types of student loans you have, contact your loan servicer to find out.
Within a few weeks, you are supposed to receive notice indicating what has happened with your federal loans. You can choose to keep paying down your principal if you want. Then, after Aug. 1, you should get multiple notices letting you know about the cessation of the suspension period and that you may be eligible to enroll in an income-driven repayment plan.
Q: Will my loan servicer charge me interest during the six-month period?
The bill says that interest “shall not accrue” on the loan during the suspension period.
At the end of the suspension, keep a close eye on what your loan servicer does (or does not do) to put you back into your previous repayment mode. Servicer errors are common.
Q: Will the six-month suspension cost me money, since I’m trying to qualify for the public service loan forgiveness program by making 120 monthly payments?
No. The legislation says that your payment count will still go up by one payment each month during the six-month suspension, even though you will not actually be making any payments. This is true for all forgiveness or loan-rehabilitation programs.
Q: Is wage garnishment that resulted from being behind on my loan payments suspended during this six-month period?
Yes. So is the seizure of tax refunds, the reduction of any other federal benefit payments and other involuntary collection efforts.
Q: Are there changes to the rules if my employer repays some of my student loans?
Yes. Some employers do this as an employee benefit. Between the date the bill is signed and the end of 2020, they can offer up to $5,250 of assistance without that money counting as part of the employee’s income. If the employer pays tuition for classes an employee is taking, that money will also count toward the $5,250.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.