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How the CARES Act Stimulus Affects Your Student Loans

On Friday, March 27, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The $2.2 trillion emergency stimulus bill provides sweeping relief for American consumers, businesses and industries.

The CARES Act also includes much-needed assistance for student loan borrowers. If you have student loans and are experiencing financial hardship right now, here's what the CARES Act can do for you.

What the CARES Act Means for Student Loans

The stimulus package includes provisions to help most student loan borrowers weather the economic storm caused by the COVID-19 pandemic. Here are some of the benefits provided:

  • All involuntary collections of student loan debt are suspended, including wage garnishments, Social Security garnishments and tax refund offsets.
  • The U.S. Department of Education will automatically suspend payments on direct loans and FFELs (Federal Family Education Loans) held by the federal government through September 30, 2020.
  • No interest will accrue during the suspension period, and suspended payments will count toward requirements for the Public Service Loan Forgiveness program and income-driven repayment plans.
  • The Department of Education will report suspended payments to the national credit bureaus as though they were on-time payments.
  • Through the end of 2020, employers can provide up to $5,250 toward an employee's student loan debt, and this would not be considered a taxable benefit to the employee.

If you qualify for assistance, the suspension of payments is automatic, so you don't have to worry about contacting your student loan servicer. But while you don't need to make payments until at least the end of September, the federal government isn't making those payments for you. As a result, your repayment term will be extended by the duration of the suspension period.

For employers, the $5,250 amount is currently what they can provide to employees annually for tuition assistance on a tax-free basis; but it will be the combined limit for tax-free tuition and student loan repayment assistance in 2020.

Who Is Eligible for Student Loan Benefits?

The CARES Act only offers suspended payments for student loan borrowers who have direct loans or FFEL loans that are held by the federal government. This means that if you have FFEL loans held by a commercial lender or federal Perkins loans, you're not eligible for the benefit.

According to the Institute for College Access & Success, nearly 12% of federal loans don't qualify under the terms of the CARES Act. Additionally, private student loans, which often carry higher interest rates than federal loans, aren't included in the stimulus package.

If you do qualify, though, remember that you don't need to submit a request for help or even contact your loan servicer. The Department of Education will start the suspension period automatically.

As for the employer benefit, you may qualify if your employer decides to offer student loan repayment assistance as a benefit. According to the Society for Human Resource Management, 8% of organizations in the U.S. already offer this perk for employees.

What to Do if You're Not Eligible for Relief Under the CARES Act

If you have student loans that aren't eligible for suspended payments, you'll still be on the hook for monthly payments for the foreseeable future. If you're struggling to keep up with your payments, contact your lender to ask about forbearance and other options.

While forbearance won't stop interest from accruing—and you'll have to make up those payments in the future—it can give you a reprieve from loan payments for at least a few months.

Here are just a few examples that were available at the time of publication. Be sure to check for any policy updates from these and other lenders:

  • Citizens Bank: Borrowers can get up to 12 months of forbearance.
  • Commonbond: The lender offers forbearance for up to 24 months.
  • College Ave: Currently offers a disaster forbearance program, which can pause your payments for three months.
  • Discover: Can temporarily reduce your interest rate for six months or grant forbearance for up to 12 months in small increments.
  • Earnest: Qualified borrowers can get disaster forbearance, which postpones payments for up to three months.
  • Sallie Mae: Student loan borrowers can get up to 12 months of forbearance in three-month increments.

Keep in mind that you may need to meet certain requirements to qualify for forbearance with your private lender. Call your lender to find out what your options are and whether you qualify.

If your employer doesn't plan on providing loan repayment assistance, consider speaking with your human resources department to see if it may be an option, if only temporarily, during a challenging economic situation.

Consider Requesting Forbearance Even if You Don't Need It

If you have eligible federal loans, you don't have to do anything to take advantage of the benefits provided by the CARES Act. But if your loans don't qualify, it may be worth requesting forbearance even if you don't think you need it right now.

Health experts aren't exactly sure when the COVID-19 pandemic will ease up and make it possible for life to go back to normal. Even if your job and income are secure right now, that can change in the coming months, and having a little extra cash can make it easier to get through anything that comes your way.

Of course, some private lenders may not deem you eligible for forbearance, but it may still be worth trying to put a little less pressure on your budget.

How Does Student Loan Forbearance Affect Your Credit?

For student loan borrowers who are eligible to take advantage of the CARES Act's assistance, the good news is your credit reports and scores will not be negatively affected. Your student loans will stay on your credit report, but will remain in positive standing (as long as you were current on your loans when you sought assistance).