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? ›
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.
Why did I get a student loan refund check in 2024? ›
Borrowers who reach forgiveness under the account adjustment will get an email notification by the end of 2023; all other borrowers will be notified in 2024. So if you requested a refund, but you've been in repayment for at least 20 to 25 years, you may be free from your student debt — including the refunded amount.
What is the CARES Act for student loans 5250? ›
As part of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act), Congress amended Section 127 of the Internal Revenue Code (Code) to permit employers to pay up to $5,250 per year to employees for student loan repayments as part of an educational assistance program.
What is Section 127 of the CARES Act for student loans? ›
Section 127 provides an exclusion from gross income for loan payments made by an employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), on a qualified education loan incurred by the employee for the employee's own education.
Are student loans on hold in 2024? ›
During the on-ramp period (through Sept. 30, 2024), we'll automatically put your loan in a forbearance for the payments you missed.
Are student loans being forgiven? ›
To date, the Biden-Harris Administration has approved $146 billion in student debt relief for 4 million Americans through more than two dozen executive actions. That includes fixing Public Service Loan Forgiveness and Income-Driven Repayment plans, so borrowers finally get the relief they are entitled to under the law.
Do I have to pay back my student loan refund? ›
If you received a refund for student loan payments made during the pause, you must repay it as part of your original loan amount. If your budget is already strained, an income-based repayment plan may help make payments more reasonable and put loan forgiveness within your reach. Supreme Court of the United States.
Will Mohela student loans be forgiven? ›
If you work in certain public service jobs and make 120 payments on your Direct Loan(s), you may be eligible to have your loans forgiven. If you are a teacher in a low-income school or educational service agency, you may be eligible for Teacher Loan Forgiveness.
How do I check the status of my student loan forgiveness? ›
If you have an approved Public Service Loan Forgiveness (PSLF) form, to view your payment history and qualifying payments for PSLF and TEPSLF:
- Log in to your StudentAid.gov account.
- From your Dashboard, navigate to “My Aid.”
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.
Is there student loan forgiveness for mental health workers? ›
If you agree to a two-year service commitment in a designated Health Professional Shortage Area (HPSA), you may qualify for student loan debt forgiveness that applies to mental health clinicians.
Why did my student loan balance increase during the pandemic? ›
Most of this increase in student loan debt can be attributed to the federal loan payment pause that began with the CARES Act and has since extended until October 2021.
What is the Section 127 exclusion? ›
Section 127 allows employers to offer their employees up to $5,250 annually in tax-free educational assistance for undergraduate or graduate-level courses. Employers are not required to provide assistance under Section 127 to their employees.
What is the IRS 127 plan? ›
Section 127 of the Code provides that the gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee (up to $5,250 per calendar year) if the assistance is furnished pursuant to an educational assistance program under section 127 of the Code.
What is the Revenue Code 127? ›
Gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a program which is described in subsection (b).
How to get refund from COVID-19 CARES Act federal student loan? ›
No, you can no longer get refunds for payments you made during the COVID-19 payment pause. The refund benefit ended on Aug. 28, 2023. Prepare for student loan payments to restart.
Do I have to pay my student loan refund back? ›
If you received a student loan refund, you're now responsible for paying it back.
Why is my student loan in forbearance until 2040? ›
This typically happens if your federal student loan servicer makes an error, like sending incorrect or late billing statements. There are a few other situations, like waiting for a borrower defense or Public Service Loan Forgiveness (PSLF) application to process, that can lead to administrative forbearance.
Why would my student loans be placed on administrative forbearance? ›
Instead of billing borrowers an incorrect amount, servicers have tended to use an administrative forbearance instead. This gives the servicer time to get a borrower's payment calculated correctly.
