Federal Student Loan Borrowers Get Expanded Relief in CARES Act
On
March 27, 2020, Congress passed the CARES Act, the largest economic stimulus
bill in the history of the United States, in response to the coronavirus
pandemic.1 Included in the legislation are new rules for student
loan relief that supersede the rules that were announced only a week earlier by
the Department of Education.
For
more information on both sets of rules, visit the federal
student aid website.
What
new relief is being offered?
The
new legislation provides a six-month automatic payment suspension
(administrative forbearance) for any student loan held by the federal
government. This six-month period ends on September 30, 2020. Borrowers do not
need to contact their loan servicer to request a suspension; they will be
automatically placed in administrative forbearance. Under the previous policy,
the payment suspension was for two months and it was not automatic; borrowers
had to contact their loan servicer to opt in.
The
new stimulus legislation also provides a temporary incentive for employers to
pay down their employees' student debt balances. Specifically, employers are
able to contribute up to $5,250 toward an employee's student debt through
December 31, 2020 without any tax consequences for the employee.
What loans qualify
for the suspension?
Only
student loans held by the federal government are eligible. This includes Direct
Loans (which includes PLUS Loans), as well as Federal Perkins Loans and Federal
Family Education Loan (FFEL) Program loans held by the Department of Education.
Private student loans are not eligible.
Will
interest continue to accrue during the suspension period?
No.
Interest will not accrue during the six-month suspension period. The interest
rate is being set at 0%. Also, due to the Department of Education's earlier
student loan relief rules, the interest rate on all eligible federal student
loans is effectively set at 0% from March 13, 2020 through September 30, 2020.
What happens with auto-debit payments?
Auto-debit
payments are suspended during the administrative forbearance period. Any
auto-debit payments processed between March 13, 2020 and September 30, 2020 can
be refunded. Borrowers should contact their loan servicer if they wish to
request a refund.
Can borrowers keep making their student loan
payments?
Yes.
Borrowers can choose to keep making their monthly student loan payments during
the six-month suspension period if they wish. Borrowers should contact their
loan servicer to opt out of the administrative forbearance period and continue
their auto-debit payments. Borrowers also have the option to make manual (i.e.,
not auto-debit) payments during the administrative forbearance period.
During
this period of 0% interest, the full amount of a borrower's payment will be
applied to principal (once all interest accrued prior to March 13, 2020, is
paid). Borrowers can also choose to make partial payments during the suspension
period.
How
will the suspension period affect the Public Service Loan Forgiveness Program?
Under
the Public Service Loan Forgiveness (PSLF) Program, borrowers who work in an
eligible public service job and make 120 on-time student loan payments are
eligible to have the remaining balance on their federal Direct Loans forgiven.2
Under the new legislation, the six-month freeze on student loan payments will
not affect the 120-month running period for purposes of the PSLF program. In
other words, each month of the suspension period will still count toward a
borrower's 120-payment tally, even if the borrower does not make any payments
during the six-month period.