The CARES Act, which is the new multi-trillion dollar stimulus bill designed to help those impacted by the COVID-19, directly helps borrowers with student loans and provide financial relief from March 13, 2020 through September 30, 2020. There are 5 key areas:
1. You have the option to stop paying your federal student loans from now through September 30, 2020.Your balance will not change during this time.Additionally, absent any extension, you would resume paying your federal student loans in the normal course after September 30, 2020.
2. The interest is waived on your federal student loan through September 30, 2020.This means that if you decide not to pay your federal student loans during this period, your federal student loan interest rate will be set to 0% and you won’t be penalized with any interest accrual.
3. If you skip a loan payment, then it counts for Public Service Loan Forgiveness.The Public Service Loan Forgiveness program requires 120 monthly student loan payments (consecutive or nonconsecutive).If you are pursuing public service loan forgiveness and decide to skip your loan payments through September 30, 2020, the skipped payments will count toward the required 120 monthly payments.
4. Your employer can now pay up to $5,250 of your student loans tax-free this year, if your employer pays student loans as an employee benefit.
5. You will not be reported to collections during this time period for student loan debt collection. The CARES Act also stops involuntary collection of student loan debt during this timeframe.
Please note that temporary student loan relief only applies to federal student loans, not private student loans. That means that your loan needs to be both federal and federally held (i.e. your lender is the federal government and not a bank or other commercial lender). Private student loans should still be paid based on the normal payment schedule.
If your federal student loan qualifies, then you do not have to do anything to get relief. You can check the Federal Student Aid to see if your loan qualifies. So what student loans qualify?
- All direct loans – those taken out since 2010 – qualify.This includes direct Parent PLUS loans.
- Most Federal Family Education Loan Program (FFEL) loans – those taken out before 2020 – do not qualify.However, there are a few exceptions.
- Most Perkins loans – held by a college or university – do not qualify.However, there are a few exceptions.
Also, as of now, the CARES Act does not provide for any student loan forgiveness. You may want to consider student loan refinancing, student loan consolidation or an income-driven repayment plan.