Congress Passes Relief for Student Loan Borrowers in CARES Act

Congress Passes Relief for Student Loan Borrowers in CARES Act

Key Takeaways

  • Congress recently passed legislation in the CARES act that provides direct and indirect benefits to Federal Student Loan borrowers.
  • Benefits include a suspension of payments, no negative credit reporting, no collection activity, and no accrual if interest until September 30, 2020.
  • Congress allows employers to now pay up to $5,250 without a tax impact to the borrower.
  • Congress also counts the non-payment period through September as credit toward loan forgiveness credit.
  • No action is required on the part of the borrower to activate these benefits.

The CARES Act, signed into law on March 27, 2020, is a 2.2 trillion stimulus package created to counter the economic devastation resulting from business shutdowns due to the coronavirus. The stimulus package provided direct payments to families, extended unemployment benefits, forbearance provisions for federally backed mortgages, and payment protection loans for small businesses.

The Act also included assistance for most student loan borrowers who face financial hardship due to the economic impact of the COVID-19.

Help Available for Borrowers with Student Loans

The CARES Act offers both direct and indirect relief to consumers with outstanding student loans. Benefits include the following:

Suspension of Monthly Payments: The US Department of Education automatically suspended payments on outstanding federal student loans. Payment relief includes both direct and FFEL (Federal Family Education Loans) loans and lasts through September 30, 2020.

Interest Holiday: Interest will not accrue during the payment suspension period.

Stopped Involuntary Collection Activity: The Department of Education suspended wage garnishments, Social Security garnishments, and tax refund offsets on federally held student loans.

Credit for Payments: Student loan debt forgiveness programs require borrowers to make a set number of payments before qualifying for loan forgiveness. The CARES Act gives borrower’s credit for payments during the six-month suspension.

No Negative Credit Reporting: The Department of Education will report accounts not in delinquent status as current for all borrowers with suspended payments through September 30, 2020.

Tax Benefits: Employers may pay up to $5,250 towards the student loan debt of an employee without taxation to the employee. Currently, only 3% of employers offer student loan repayment assistance.

Who Qualifies for the CARES Act Student Loan Benefits?

Only federally held FFEL and Direct Loans qualify for the above benefits. Private loans, Perkins Loans, and FFEL loans held by commercial lenders were not included in the CARES Act. In total, the Act covers 88% of outstanding student loans.

How to Get the CARES Act Benefits?

If you have a qualified loan you will automatically receive the benefits offered.

The federal government is not making payments on student loan accounts, but rather suspending payments, which will extend the term of the loan. However, but due to the zero-interest provision through September 30, 2020, balances will not increase during this time. If your income has not been impacted by COVID-19, continuing to make payments will reduce the loan balance faster, due to the interest relief.

Employer benefits: Employers have offered tax-free tuition reimbursement of up to $5,250 annually as a popular employee benefit. The CARES Act extends tax-free student loan repayment as an employer benefit for 2020. This year, employers may offer either tuition reimbursement or student loan repayment of up to $5,250 tax-free to employees.

Help for Those Who Do Not Qualify for Assistance Under the CARES Act

Borrowers with student loans not included under the CARES Act must contact their loan servicer directly for available relief programs. A forbearance through a non-qualifying loan will continue to accrue interest during the forbearance period but could include payment relief from 3 to 24 months.


Do I have to make payments on my student loans during the COVID-19 Pandemic?

If you have a qualifying Federal Student Loan, you are not required to make any payments on your Federal Student Loans through September 30, 2020, but you must contact your loan servicer to request payments be suspended.

Will my Federal Student Loans still be accruing interest during the payment deferral period?

No. Your qualifying Federal Student loans will not accrue any interest until the payment deferral ends on September 30, 2020

Will I receive credit for payments I did not make during the Student Loan Deferral period?

Yes. As part of the Cares Act, Congress allowed for a provision that during the six-month deferral period, borrowers with qualifying Federal Student Loans will receive credit for payments during the payment deferral period that ends September 30, 2020.

Will my credit be negatively impacted if I do not make my Federal Student Loan Payments during the COVID-19 Pandemic?

No. As part of the CARES Act, the Department of Education will report all loans not delinquent and current for all borrowers with suspended payments.

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