What the CARES Act Means For Your Student Loans
Updated: August 30, 2020
Finance guru Good Nelly is a writer from Milwaukee, Wisconsin that started her financial journey a way’s back and loves helping people tackle their debt. Currently associated with Debt Consolidation Care, I’m excited to have her on Beworth to share what the CARES Act means for your student loans. You can find her on Twitter @GoodNelly1.
According to Pew Research, about one-third of adults in our country have student loan debt – that’s a TON of people – meaning millions were already struggling to repay their student loans even before the Coronavirus pandemic.
Now, the situation is worse.
Unemployment rates are at an all-time high and many others are facing pay cuts, making it very difficult to pay bills and student loan payments. That said, the government has taken various steps to help borrowers deal with their student loans. On March 13, 2020, interest was waived off on some student loans, and now, student debt warriors have the option of stopping some student loan payments (through December 31, 2020 as of August 30, 2020).
But which student loans? And how will this impact your finances moving forward?
Keep reading for all the student loan deets of the CARES Act below.
CARES Act – What’s the deal?
The CARES ( Coronavirus Aid, Relief, and Economic Security) Act was signed into law on March 27, 2020. It has introduced several measures to help and support both individuals and businesses during the times of COVID-19. This includes, for qualifying student loans, the borrowers won’t have to make any payment until September 30, 2020 (update: in August 2020 President Trump ordered an extension of this portion of the CARES Act through December 31, 2020). The interest also won’t be accrued on the loan during this time – which helps those struggling to make their payments, and those still in a position to pay off their loans quicker (more on this below).
To sum it all up, advantages of the CARES Act for eligible student loans include:
Collection activities suspended until December 31, 2020 - Even if you’ve defaulted on your loans, no debt collector can call you for payments.
No student loan payments till December 31, 2020 - The qualifying student loan payments are suspended through 2020. So, you won’t have to make your regular student loan payments.
0% Interest rate on loan - The rate of interest on eligible student loans is 0% within the period of March 13, 2020, to December 31, 2020. So, no interest will be accrued on your loan during this period.
“Administrative forbearance” sounds fancy. What is it?
The option to suspend student loan payments is also known as forbearance. Auto debit payments are also suspended during this time, between March 13, 2020, to December 31, 2020. If any auto-debit payment has already been processed during this time, then you should be able to call your lender and can get a refund.
PRO TIP: If you’re short of cash now, the Education Department states that you are entitled to a refund for payments made between March 13, 2020, and April 10, 2020 if you call your lender.
How does the CARES Act affect Public Service Loan Forgiveness (PSLF)?
If you are already under the Public Service Loan Forgiveness program, then also you can get the advantage of the CARES Act if you’re still working as a full-time employee for a qualifying employer. Payments postponed during this period will still count towards the requirement for monthly qualifying payments.
Which student loans qualify?
The following student loans qualify for the payment suspension and 0% interest option.
Government-funded Direct student loans, including Direct Stafford loans, Direct Plus loans and Direct Consolidation loans.
Loans from the FFEL (Federal Family Education Loan) Program, IF owned by the federal government – but most are not. In the event your FFEL loan is owned by a commercial lender, you might want to consolidate your loans to a Direct Consolidation Loan to qualify (more on this below).
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The Secretary of Education was supposed to notify the student loan borrowers, who qualify for administrative forbearance, within 15 days. Borrowers are also supposed to get a notification when the normal payment obligations will resume for them. The borrowers will also have the option to enroll for income-driven payment plans as well, if they are eligible.
What to do if your student loan doesn’t qualify
If your student loans don’t qualify for the CARES Act, don’t panic. If you’re in this situation, there are still a few options:
If federal loans: take out a direct consolidation loan
If your federal student loan(s) doesn’t qualify under the CARES Act, you can consolidate them through a direct consolidation loan. Once you do it, your new loan will qualify for the CARES Act and payments will be waived off for the time being.
Keep in mind consolidating your federal student loans will reset the clock if pursuing public student loan forgiveness. Also, if consolidating a Perkins Loan, you may lose some benefits such as forgiveness after five years for some professions.
To learn more about the pros and cons of consolidating your federal loans, click here.
If private loans: opt for a debt consolidation program
If you have private student loans, you won’t qualify under the CARES Act. That said, your loan provider may still offer an economic hardship program under different terms. You can contact your lender for deferment or alternative payment options. The lender should work with you and offer you a new payment plan, which will be helpful during this time. Call them up and make sure to ask these five questions.
If that doesn’t work, you might consider contacting a reliable debt consolidation company. Make sure to check the BBB rating and read the customer reviews. After analyzing your financial situation, the company may offer you a debt elimination plan through which you can repay your debts through affordable single monthly payments. Further, the counselors from the company can negotiate with your lenders to reduce the interest rates on your loans. You can include your other unsecured debts as well.
How will the Act impact your credit score?
In normal times, when you stop making payments on your student loans, it reduces your credit score and can stay in your credit report for years. Thanks to the CARES Act, however, when you suspend your payments, it’ll be treated as if you’ve made your regular student loan payments — so it won’t impact your score or report.
Whew!
What to do if you’re in good shape with your loans?
If you can still pay your loans and have 3-4 months worth of emergency savings, the CARES Act may present opportunities for you to pay down your loans more quickly. Because interest is waived during this period, this means that if you continue to make payments, 100% will be applied to the principal of your loan which can save you a lot of money over time! If you’re seeking Public Student Loan Forgiveness however, better to go with the postponed payments and use those funds to build up your emergency fund or pay down any other high-interest debt.
Looking for more ways to save during the COVID-19 pandemic?
Check out this free guide for ways to stack cash and find help during this time.
Alternatively, instead of paying down your loans more quickly, you may put any temporary savings towards other high-interest debt, like credit cards or payday loans. This will put you in better financial shape once the pandemic is over — and hopefully, soon!
Thank you Good Nelly for sharing this with us! You can find more work from Good Nelly here.
