The CARES Act can make managing student loan debt easier in the short-term. (iStock)
The federal Coronavirus Aid, Relief and Economic Security (CARES) Act created a number of initiatives to help Americans who are struggling financially as a result of the coronavirus crisis. A key part of the Act was designed to offer relief to borrowers who owe federal student loans. Here's what you need to know about the CARES Act and student loans.
What the CARES Act does for student loan borrowers
If you owe federal student loans, there are a few ways the CARES Act can help make them more manageable. The most important benefits include:
- Student loan payments are suspended through September 30, 2020 for Direct Loans and Federal Family Education Loans (FFEL)
- No interest accrues on your loans during this temporarily student loan forbearance period
- Suspended student loan payments will still count toward the required payments for Public Service Loan Forgiveness (PSLF)
- Not making payments to loans eligible for forbearance during this time won't count against your credit history
- Collection actions for federal student loans, including tax refund offsets, wage garnishments and social security garnishments, are suspended temporarily
- Your employer can pay up to $5,250 toward your student loan debt for you through the end of 2020, without it being counted as part of your taxable income
Of those benefits, the most helpful may be student loan forbearance. Being able to temporarily pause payments through the end of September could be welcome if coronavirus has caused you to take a pay cut.
Who qualifies for CARES Act student loan relief
CARES Act benefits are designed to help you if you owe federal student loans. That includes:
- Direct Loans (including Stafford, Grad PLUS, Parent PLUS and Consolidation loans)
- FFEL Loans
- Perkins Loans that are held by the U.S. Department of Education
If you have FFEL or Perkins Loans owned by a third-party lender that isn't connected to the Department of Education, the CARES Act provisions won't extend to them.You also won't qualify for student loan forbearance and other benefits for private student loans. But you can check with your loan servicer to see if they offer relief options, such as deferment or forbearance periods,or consider a refinance of the loan. An online marketplace like Credible can help you find the right plan for you.
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How to manage student loan forbearance
If your federal student loans are currently in forbearance under the CARES Act, you may have questions like:
- Should I pay my student loans during forbearance if I can afford it?
- How will student loan forbearance affect my credit score?
- Can forbearance help me avoid default?
If you're able to pay your loans during a forbearance period, doing so could help make a larger dent in what you owe. According to the Department of Education, payments made during the temporary forbearance period are applied directly to your loan principal.
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In terms of credit score impact, the CARES Act says that any suspended payments owed during the forbearance period will be reported to the credit bureaus as if you'd made them. And if you fell behind on loan payments prior to the Act's enforcement, debt collectors are not allowed to contact you about your loans through Sept. 30, 2020.
But the Act won't erase any late or missed payments that were previously reported to the credit bureaus. If you're in danger of defaulting on federal student loans, the Act may delay it but not prevent it if you don't reach out to your lender to discuss long-term solutions.
Should I refinance my student loans?
Refinancing student loans is something you may consider if you have private student loans and are interested in getting a lower interest rate. With refinancing, you're getting a new loan to pay off your existing student loans, ideally with a lower rate and a lower monthly payment. You canuse Credible's free online tool to compare multiple lenders within minutes.
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Refinancing private student loans typically involves a credit check so you may need to consider having a cosigner to qualify. If you're interested in a refinance, take time to estimate your potential interest savings and your new monthly student loan payments to determine if it makes sense.
Other ways to manage student loans during coronavirus
Student loan forbearance can help if you're having difficulty making loan payments because of the COVID-19 pandemic. The most important thing to remember is that this is only temporary and you'll need to review your budget to make sure you can continue making payments once forbearance ends.
If you're still having a hard time with loan payments beyond September, there are other options. For example, you may be eligible for a deferment that would allow you to pause payments temporarily. Or you may consider consolidation for federal loans to streamline monthly payments.
Switching from a standard repayment plan to an income-driven repayment plan could also help if your income hasn't recovered to pre-coronavirus levels. An income-driven plan won't reduce your student loan interest rate but it can make monthly payments more affordable. Talking to your loan servicer can help you explore all the available options.
FAQs
As a result of CARES Act relief, these students would also not be required to repay Direct Loan funds disbursed for the payment period or period of enrollment in which they withdrew, nor would their Pell lifetime eligibility or Subsidized Loan usage be affected by their receipt of Title IV aid for the period.
What does the CARES Act mean for student loans? ›
The CARES Act allows employers to pay up to $5,250 toward student loans on behalf of employees and the employees would not owe US federal income taxes on the payments. That could make a significant dent in a borrower's total debt load.
Will student loans take my taxes in 2024? ›
Important note: As part of the Fresh Start Program, borrowers with eligible defaulted loans are receiving certain relief measures, including tax refunds (and child tax credits) not being withheld. This relief will continue through at least September 2024.
What is the CARES Act for student loans 5250? ›
Section 2206 of the CARES Act modifies Section 127 of the Internal Revenue Code so that employers can pay up to $5,250 to repay employee student loans during the pandemic emergency period beginning March 27, 2020, and ending December 31, 2025.
What is Section 127 of the CARES Act for student loans? ›
The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded Section 127 to cover up to $5,250 in employer payments for student loan repayment assistance through 2020. The Coronavirus Response and Relief Supplemental Appropriations (CRRSAA) Act extended the provision through the end of 2025.
Does the CARES Act include student loan forgiveness? ›
Borrowers were required to resume payments on their principal balances in October 2023. Since the CARES Act was passed, the Department of Education approved multiple programs to forgive student loan debt held by varying classes of borrowers.
What is the CARES Act stimulus forgiveness and relief legislation? ›
The Coronavirus Aid, Relief, and Economic Security Act (CARES) authorized direct payments to individuals, generous monthly rebates to families with children, and extended unemployment benefits for laid-off workers.
Can the IRS come after you for student loans? ›
The government may take your federal income tax refund if you are in default. Computer records of all borrowers in default are sent to the I.R.S. If you are in default on your federal student loans, all or a portion of your tax refund may be taken and applied automatically to your federal student loan debt.
How do I know if my student loans are forgiven? ›
Your student loan servicer(s) will notify you directly after your forgiveness is processed. Make sure to keep your contact information up to date on StudentAid.gov and with your servicer(s). If you haven't yet qualified for forgiveness, you'll be able to see your exact payment counts in the future.
Will I get my tax refund if I owe student loans? ›
Usually only the state and federal governments are able to take your tax refund, therefore you'll probably get your refund if your student loan debt isn't: With the state or federal government. Part of a federally insured student loan program.
STUDENT LOAN REPAYMENT PAUSE ENDS. AUGUST 30, 2023: HERE'S WHAT YOU NEED TO KNOW. Millions of federal student loan borrowers have had their federal student loan and interest payments automatically suspended during the Coronavirus pandemic pursuant to The Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Does the CARES Act cover private student loans? ›
However, the CARES Act did not address millions of student loan borrowers with federal loans that are not owned by the U.S. government as well as loans made by private lenders.
What is the Secure Act 2.0 student loan? ›
A feature of Secure Act 2.0 allows employers to treat employee student loan debt repayments as if they were 401(k) contributions—and make matching contributions for qualified student loan repayments into the employee's retirement account. Student loan debt precludes many workers from saving for their retirement.
What is the tax code 132? ›
132 Certain fringe benefits. 26 U.S.C. section 132, Certain fringe benefits. IRC section 132 section provides definitions for various kinds of fringe benefits, including working condition fringes, de minimis fringes, qualified transportation fringes like parking, moving expenses, and employer operated eating facilities ...
What is the student loan interest Elimination Act? ›
PROGRAM FOR THE LOAN MODIFICATION OF ELIGIBLE FEDERAL DIRECT LOANS, AND REFIRNACES OF OTHER FEDERAL STUDENT LOANS. Modifies, without any action from the borrower, the terms of federal direct loans so that beginning on July 1, 2024, no more interest will accrue on the loan.
What is the consolidated appropriations act for student loans? ›
Specifically, the Consolidated Appropriations Act expands Internal Revenue Service Section 127, which addresses Educational Assistance Programs (“EAPs”), to permit employers to provide up to $5,250 per year in pre-tax benefits to employees (or a lender) to help pay for their student loans.
How does the CARES Act affect my student loan? ›
If your loans were eligible, we automatically paused your loan payments and set your interest rate to 0% from March 13, 2020, until Sept. 1, 2023. This payment pause is also known as an administrative forbearance. You can no longer get refunds for payments you made during the COVID-19 payment pause.
Why is my student loan not due until 2024? ›
To help borrowers successfully return to repayment, we created a temporary on-ramp period through Sept. 30, 2024. This prevents the worst consequences of missed, late, or partial payments, including negative credit reporting for delinquent payments for twelve months.
Will student loans be forgiven? ›
All borrowers on SAVE receive forgiveness after 20 or 25 years, depending on whether they have loans for graduate school. The benefit is based upon the original principal balance of all Federal loans borrowed to attend school, not what a borrower currently owes or the amount of an individual loan.
Do I have to pay my student loan refund back? ›
If you received a refund for student loan payments made during the pause, you must repay them as part of your original loan amount.
