CARES Act: Changes to Student Loans

NOTE: This article will be updated as new guidelines or laws are passed about economic support during the Coronavirus pandemic.

NOTE: Updated 3/27/2020 due to the passage of the CARES Act.

There have been some significant developments to the federal student loan program during the pandemic and as a result of the CARES Act, which was signed into law on 3/27/2020. I will continue to update this post as new information is announced.

Here are all of the current changes:

  • Student loan payments are automatically suspended until September 30, 2020. Only Direct or FFEL loans that are owned by the Department of Education are included in this, which means that payments for FFEL owned by lenders, Perkins loans, and private student loans are not included.
    NOTE: There has been some confusion about whether or not the payments are automatic or if the borrower needs to apply for it. This article from the Consumer Financial Protection Bureau clears it up and states that the payment suspension is automatic.

  • Involuntary payments, such as wage garnishments and tax refund seizures, will stop until September 30, 2020.

  • Interest is set to 0% during the payment suspension so included loans will not accrue interest.

  • Borrowers can make voluntary principal payments during the payment suspension. The bill did not clarify whether or not accrued interest needs to be paid off before payments reduce the principal balance. More clarification will come from the Department of Education, and this post will be updated as information is released.

  • Suspended payments are considered payments for loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). Borrowers in this circumstance should NOT pay extra during the payment suspension.

  • Suspended payments will be reported as full payments to credit bureaus, which will be helpful to some borrower’s credit reports.

  • Rates on private loans are low right now as well, so a number of borrowers are asking if this is a good time to refinance their loans. Refinancing loans only makes sense if borrowers have a high federal rate and they know for sure they won’t be using any of the federal benefits, such as forgiveness, deferment, or forbearance. With 0% interest and no payments for now, though, I would just focus on paying the principal balance down.

If you want help navigating these changes and setting up a student loan plan visit my website

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