Those who owe money on student loans should know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes options for students. The CARES Act was approved to provide relief to citizens who may be struggling financially due to the COVID-19 pandemic. Specifically, for students, some payments will be halted between March 13, 2020, and Sept. 30, 2020, and interest will be removed during this period. However, it is imperative for those with active student loans to understand the details and what the CARES Act means for them.
This suspension applies only to federally held loans and not private loans. This includes loans under the Federal Family Education Loan (FFEL) Program that were taken out after 2010 as well as HEAL loans and Perkins loans that are held by the school itself. However, some institutions may offer additional relief programs for borrowers who are not eligible for what the CARES Act provides.
Those who are working toward Public Service Loan Forgiveness (PSLF) can rest assured that these payment suspensions will still count as though the borrower was making payments. Borrowers with multiple federal loans, including FFEL and Perkins loans, might consider consolidating multiple loans into one Direct Consolidation Loan, which can qualify for PSLF, especially during this time.
In addition to these benefits, the federal government has stopped wage garnishment and tax refund offsets for loans that are in default if those loans are also federally held. Similarly, suspended payments for borrowers on an income-driven repayment (IDR) will be included as long as other requirements are met.
Borrowers do not have to take any actions to benefit from the CARES Act. The lender will pause bills and auto-debits by default. If borrowers made any payments to their loans after the announcement of the CARES Act, they could request a refund for that money from the lending institution.
For those who can make payments during this period, it is wise to do so. The 0% interest rate means that all funds apply directly to the principal of the loan, allowing borrowers to pay off the loan at a faster rate. While payments are suspended and no more interest can be accrued during this time, the loans will not decrease without payment. After September 30th, loan payments and interest will return to their normal amounts.
The relief provided by the CARES Act does not just apply to current college students. There are people of all ages who are still paying down student loans. These older people may find that the benefits of the CARES Act as they relate to student loan debt will help offset the household costs during these uncertain times.
Securities and Investment Advisory Services offered through Essex Financial Services, Inc., a Registered Investment Advisor, Member FINRA, SIPC. A subsidiary of Essex Savings Bank. The securities and insurance products offered through Essex Financial Services, Inc. are not a deposit of, or other obligation of, or guaranteed by any bank, or an affiliate of any bank, are not insured by the FDIC or any other agency of the United States, the Bank or an affiliate of the bank and involve investment risk, including the possibility of a loss of the principal amount invested.