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Everything The CARES Act Does For People With Student Loans

Kim Porter  |  May 5, 2020

A look at what the new law can do for people with student debt.

If you’ve been financially impacted by the coronavirus—and at least half of Americans fit that description, according to a recent Gallup poll—your student loan bill might be the last thing on your mind. 

The average student loan payment is $393 per month. But thanks to the federal Coronavirus Aid, Relief and Economic Security (CARES) Act, you might qualify to temporarily pay nothing at all. The CARES Act provides assistance to most federal student loan borrowers, and if you have this type of debt, here’s what the new law can do for you. 

What the CARES Act does for people with student loans

The stimulus package is meant to stem the economic fallout of the COVID-19 pandemic, and parts of the law help student loan borrowers manage burdensome payments. Among its dozens of provisions, the CARES Act:

… Hits the pause button on federal loan payments.

The U.S. Department of Education is automatically suspending payments on certain federal student loans through Sept. 30, 2020, and dropping the interest rate to 0%. Accounts will be reported in good standing to the credit bureaus, too. To see if you qualify, you’ll need to check which types of loans you have. The following are eligible for these protections:

  • Direct loans (subsidized and unsubsidized)
  • Loans from the Federal Family Education Loan (FFEL) Program owned by the U.S. Department of Education
  • Perkins loans owned by the Department of Education

… Counts payments toward loan forgiveness. 

If you’re enrolled in the Public Service Loan Forgiveness program or an income-driven repayment plan, the suspended payments will count toward loan forgiveness. 

… Halts collections attempts. 

The Department of Education is giving borrowers in default a break here, too. Through Sept. 30, the federal agency is suspending involuntary collections on federal student loan debt. That includes wage garnishments, Social Security garnishments and tax refund offsets. 

… Gives employers a new incentive to help with student loan debt. 

Through Dec. 31, employers can give employees money for tuition assistance or reimbursement for student loan payments. Contributions are tax-free up to $5,250. The “tax-free” part means borrowers won’t owe income tax on the contributions, while employers get a break on payroll taxes. Employers can provide this perk whether employees have federal or private student loans.   

… Provides credit protections. 

Having strong credit will be key to economic recovery, and one part of the CARES Act can help. If you enroll in a hardship program—with any lender—due to COVID-19, your lender must report your account in good standing to the credit bureaus. That’s true throughout the state of emergency, and for 120 days beyond that time frame. Check your credit reports regularly to make sure this is happening, whether you have federal or private student loans.

LISTEN: HerMoney Mailbag: College, Education, and Student Loans 

Where the CARES Act falls short for student loan borrowers

Despite the benefits of the CARES Act, it still leaves some borrowers on the hook for payments during the COVID-19 pandemic.

According to The Institute for College Access & Success, nearly 12% of federal loans don’t qualify for CARES Act protections. That includes borrowers with Federal Family Education Loans owned by commercial lenders and Perkins loans owned by schools. Additionally, borrowers with private student loans won’t qualify. 

And although lawmakers initially discussed loan forgiveness, the provision was kicked to the curb before the law was passed. 

Fortunately, there are steps you can take if you’re struggling to make student loan payments right now. Many loan servicers are offering ways to keep your account in good standing, especially if you’ve been impacted by the coronavirus. 

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