The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, in response to COVID-19. The CARES Act is the “largest emergency relief bill in U.S. history,” providing federal student loan relief, among other types of financial relief. The Act includes a $2 trillion package with “six months of relief for most student borrowers.”
In fact, eligible federal student loan borrowers have been placed on administrative forbearance (meaning that borrowers can temporarily stop making their monthly loan payment, and interest has been brought down to 0%) until Sept. 30, 2020.
The administrative forbearance isn’t mandatory, however, and those who want to continue making payments can do so by contacting their loan servicer and asking to opt out.
For borrowers seeking loan forgiveness either under income-driven repayment or the Public Service Loan Forgiveness (PSLF) program, suspended payments will still count toward these programs.
The Department of Education has made the administrative forbearance retroactive to March 13, 2020. Borrowers who made a payment on or after March 13 are allowed to contact their student loan servicer to request a refund.
As well, if your loan is currently in default, you will not be subject to collections activities through Sept. 30, 2020.
Student loans that are eligible for the CARES Act include:
Student loans not eligible for the CARES Act include:
If you have a combination of loans or are not sure if your loans are eligible for the CARES Act, contact your loan servicer.
While payments are automatically suspended through Sept. 30, 2020, borrowers may want to consider the following:
If you are in good financial standing, you may choose to continue making federal student loan payments.
With 0% interest, you can pay down your loan faster, as all payments will go toward the principal balance after any outstanding interest is paid. Because of this, those payments will have a bigger impact on the total cost of your loan. By reducing your loan by six months’ worth of principal, it could, over the life of your loan, drastically reduce the interest.
If you are not experiencing any financial hardship, it could be beneficial to continue making your student loan payments; after all, once the forbearance is over, your balance will remain the same as it was before.
There are a few drawbacks to continuing to make federal student loan payments during this period of administrative forbearance.
If you are working toward Public Student Loan Forgiveness (PSLF), as long as you’re still working full time for a qualifying employer and meet the program’s other requirements, suspended payments will still count toward PSLF under the CARES Act. However, if you have been laid off, furloughed, or your hours have been reduced to less than 30 hours a week, payments made during this time (including suspended payments) will not count toward PSLF.
Because nonpayments still count toward the program if you meet the requirements, if you continue to make regular payments, you’re going to be paying more than you need to. And if you no longer qualify, payments made don’t count toward forgiveness. Once you are eligible again, however, you can return to making payments that will count toward PSLF.
You can utilize the Public Service Loan Forgiveness (PSLF) Help Tool to determine if your loans and employer qualify.
If your federal student loans are ineligible for the CARES Act, you still have options. You can consolidate your ineligible federal student loans, contact your loan servicer to determine if you are qualified for forbearance or deferment, and see if you can change your payment plan to one that is more affordable at this time.
The Direct Consolidation Loan allows you to combine multiple federal student loans into one loan, consolidating multiple monthly payments into one monthly payment. This can change variable interest rates into fixed interest rates and possibly make your Direct Consolidation Loan eligible for the CARES Act. However, keep in mind that if you are making payments toward any type of loan forgiveness and consolidate your loans, your payment count will be reset.
Federal student loans that are eligible for consolidation:
There are many repayment plans available for federal student loans, which can be changed at any time without any fees, including plans that are income-based. This comes in especially handy when your income changes, as the monthly payments for these plans can be as low as $0.
To learn more about your options for federal student loans not eligible under the CARES Act, contact your loan servicer.
The experts at College Finance are here to guide you through the ins and outs of how the CARES Act may impact your federal student loans. Whether you continue to make student loan payments during this time of forbearance, you need to make the most informed decisions possible, based on what is right for you. College Finance is here to provide updated, relevant, and easily understood information to help you with loan planning, borrowing, repayment, and more.