On Friday, March 27th, the President signed the Coronavirus Aid, Relief and Economic Security (CARES) ACT. PayforED has reviewed the CARES Act impact on student loan repayment and the changes are significant.
The CARES Act helps most individual federal loan borrowers. There is a provision for student loan assistance programs that will benefit all student loan borrowers, but Private and FFEL loan borrowers need to contact their lender or servicers to see if they offer this new benefit.
Summary of CARES Act Stimulus changes for federal loans:
- Suspend Student Loan Payments for the next 6 months (Excludes some FFEL and Perkins)
- No interest charges will be applied to federal student loans
- Public Service Loan Forgiveness Credit Months will include the 6-month suspended period
- Employers can get a tax deduction up to $5,250 per employee for company contribution to employee federal student loans
- Borrowers in default can get up to 6 months of credit toward loan rehabilitation
- Collections, garnishment of wages, tax refunds and social security will be halted until September 30 and backdated to March 13, 2020
- The credit score report is eliminated for suspended reporting
- Tax filing extension impact on Income-Driven Repayment
These changed will be implemented within the next 15 days. Many of the agencies are closed or working with limited staff causing delays or long wait times. PayForED recommends that you go to the National Student Loan Database System (NSLDS) and print a list of all your current federal student loan balances. This will give you some backup in case of an error. You will need your FSA ID and Password to get access to the NSLDS. Listed below are the details of each change.
Federal Student Loan Repayments Suspended Until September 30, 2020
All current federal direct loans will not need to be paid until September 30. This will take a few days for the loan servicers to implement and stop automatic withdraws. In August, you will begin to get notices from your federal loan servicer that payments will restart on October 1. There will a minimum of six notifications via a variety of methods. It is unclear at this time how recertification will work if you are using an Income-Driven Repayment (IDR) method during this suspension time frame.
These are only for the federal loans held by the federal government. Some federal loans are owned by private banks and colleges which will still need to be paid. Private student loans are also not included in the suspension. Contact your lender to see if they are offering a suspension program.
Student Loan Interest Charges are Suspended Until September 30, 2020
For all federal direct loans, there will be no interest charged from March 13 until September 30, 2020. This was extended from the initial two-month suspension.
Public Service Loan Forgiveness Credit During CARES Suspension
While the repayment suspension is in place, people who qualify for Public Service Loan Forgiveness (PSLF) will receive payment credits without making the payment for six months. Submit your Employment Certification Form this year to ensure that you get all possible credits. Remember that PSLF requires that you are a full-time employee. If you get laid off during the six-month credit period, obtain a signed Employee Certification Form for the months you were employed to maximize your PSLF credits. Multiple part-time positions that total 30 hours will also qualify.
Employee Student Loan Assistance Benefit for Employers up to $5,250
Employers receive a tax deduction up to $5,250 per employee for contribution to their employee’s student loan payments. It includes both federal and private loans, but it is for both principal and interest paid only from 3/27/2020 to the end of 2020.
This provision could become a permanent tax incentive for companies as it has been proposed in the past. Ask your employer if they are considering this benefit. PayForED currently offers this benefit to employers for their employees.
Default Borrowers Can Get 6 Months Rehabilitation Credit
The number of default borrowers has been growing and this may be a great opportunity to get back on track. A federal borrower in default can earn up to 6 of the 9 months toward their loan rehabilitation. Once the borrower in finished their federal loan rehabilitation, they then can qualify for more federal repayment options.
Suspension of Student Loan Collections and Garnishments
For the borrower who is in collection, this was suspended starting March 13, 2020. This will put a temporary stop to any garnishment of wages, federal tax refunds, and other federal support programs.
No Credit Score Impact on Suspended Federal Loan Payments
The payment suspension will not be reported to the credit agencies during this time, causing no impact on your credit score.
Tax Filing Date Extension and Student Loan Recertification
This is the result of the tax filing extension and how it relates to borrowers who are using an Income-Driven Repayment method. It is unclear what will happen if your recertification is due during this suspension time period. In most cases, recertification is calculated using income from your most current tax return filed with the IRS.
For some people, who have a change in their repayment position or in their tax filing status, you may want this extra time to analyze all your options. The PayForED Student Loan Repayer helps individuals and couples better understand all their tax filing and repayment options.
CARES Act and Student Loan Repayment Summary
As you can see there are significant financial benefits that will help student loan borrowers get relief during this difficult time. Some of these changes will require the borrower to take additional action, while others will happen automatically. As with any of these major changes, there are many details that need to happen. We will help you keep your eye on the ball so you can maximize the opportunities that the changes allow.