On Friday, March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides relief to student loan borrowers. Here’s what this means for you.
- 0% Student Loan Interest Rate for 6 months - The interest rate on all federally held student loans will be set to 0% until September 30, 2020. Federally held student loans include Federal Direct Loans, Federal Perkins Loans and Federal Family Education Loans (FFEL).
- 6-month Suspension of student loan payments. Student Loan payments are suspended on all federally held student loans until September 30, 2020.
- Suspended payments count towards Loan Forgiveness. These suspended loan payments will count as a qualifying payment for loan forgiveness on an Income Driven Repayment Plan or for Federal Public Service Loan Forgiveness. Additionally, suspended payments will be counted towards loan rehabilitation.
- Credit reporting agencies will see these payments as regularly scheduled payments made by you.
- Collection on defaulted student loans is suspended. Involuntary collections such as wage garnishment, tax refund reductions, and reductions of federal benefits like Social Security benefits would also be suspended until September 30, 2020.
- Employers who contribute towards your student loan repayment – will be able to do this tax free for up to $5,250.
This leaves one more question - Why would you still wish to make payments if you don’t have to? Since the interest rate is now set to 0%, any payments you make will go directly to principal, allowing you to potentially pay off your student loan faster.
How will all this work? You will receive notification from the Department of Education of the temporary suspension and of your option to continue to make payments. Your Loan Servicer is working closely with the Department of Education to enact the benefits made possible by the CARES Act. The websites and systems will be updated as soon as possible. You may also check the Federal Student Aid website for additional information. Beginning on August 1, 2020, you will begin seeking notices that the temporary suspension period is ending, and that payment will resume.