The CARES Act

CARES Act

What Is the CARES Act?

The CARES Act aims to help American workers and families. This law was put in place on March 27, 2020. It is officially called the Coronavirus Aid, Relief, and Economic Security Act. It was created as a way to help provide economic relief to people who need it as well as for small business owners in the United States.

Here’s what the U.S. Department of Treasury states about the CARES Act. It aims to provide some financial support to many groups facing hardship from COVID-19. This includes students. The CARES Act is complex. There are numerous components of it. Some parts help businesses like the Paycheck Protection Program. Many components work to support American workers and their families including expanded unemployment benefits. There are also components aimed at protecting jobs. Support for local, state, and tribal governments were also put into this law.

One important component for students has to do with loans. The CARES Act provides initiatives to help people who owe on federal student loans. If this is you, there are a few things you should know about this law according to the Consumer Financial Protection Bureau.

What You Need to Know About It

There are a few key things to know right away about the CARES Act. We go into details about things to keep in mind about this relief bill.

Automatic Protection

As noted by StudentAid.gov, individuals do not need to make payment on federal student loans through the end of 2020. This includes an automatic process. It stopped accessing payments for federally held loans through the end of the year. This was completed as an executive order from the Trump Administration.

You Don’t Have to Do Anything

Borrowers may see these benefits automatically. You typically do not have to do anything to receive this payment relief.

Check in for Updates

Did you move? Did you change your mailing address? Be sure to let your loan servicer know about this right away. They need your up to date contact information. You may want to check to make sure your email address is also up to date.

Nonpayment Does Not Have Any Negative Effects

Individuals may not have to worry about making payments during this time. Nonpayment may not impact your credit score, as noted by the Consumer Financial Protection Bureau. It may not impact any loan forgiveness program you are working to achieve.

What Does the CARES Act Do for Student Loan Borrowers?

It could help provide temporary payment relief, forgive direct loans, credit history protection and no debt collection. Here are several ways the CARES Act helps student loan borrowers.

Temporary Payment Relief

Federal student loans are funds American students must repay to the federal government. Students often use these loans to pay for college costs. They typically do not have to repay the loans until after they graduate. Over time, these loan balances may grow. This may be significant. In a time like the pandemic, some students may find it hard to make payments on these loans. The CARES Act wants to make those payments more manageable in times like now.

There are many benefits to student borrowers due to the CARES Act. One component of this relates to when students have to repay their debt.

This order suspended all payments on Direct Loans through December 31, 2020. This was also done for Federal Family Education Loans, or FEEL loans. If you have these loans, you typically do not have to make a payment on them until at least December 31.

Keep in mind this may change. The initial date for the CARES Act provided temporary relief through September 30th. An Executive Order extended this. It may change in the future depending on circumstances.

This is called a temporary student loan forbearance period. During this time, Americans with these loans typically do not make payments. They also may not see interest accrue on the loan. That means the loan debt you owe is not getting bigger during this relief period.

Continued Support for PSLF

The suspended student loan payments continue to count towards the required payment for Public Service Loan Forgiveness (PSLF). This program helps to forgive the remaining balance on Direct Loans. To qualify for this program (prior to COVID), individuals typically had to make 120 qualifying monthly payments on time. They typically must have been working full time during this time. They must also typicaly work for a qualified employer. If they do this, they may qualify for loan forgiveness on the remaining payments.

The CARES Act does not interfere with this. That is, the missed payments typically do not count against you. You may still use these methods to quality for that 120-month requirement.

Credit History Protection

Another key benefit relates to credit history. Those who are eligible for the loan forbearance may be able to use it with confidence. Not making those payments typically does not hurt your credit history. It is usually not reported as a missed or late payment. That means it may not count against the borrower later. This is a good thing. It means you may not have to worry about late or missing payments on your credit report.

No Collection Actions

There are also other relief benefits that may be available. Borrowers who have collection actions against them right now for federal student loans may see those halted. That means that you do not have wage garnishments now. You also may not have to worry about tax refund offsets from the IRS on your tax return. You may not have to worry about social security garnishments either from the Treasury. All of this is in place for a temporary level of protection for student loan borrowers. This may be temporary. You still may need to get caught up. If you do not, you could face complications later. It usually does not increase your income reports on your taxes as such. It is often a good way to pay down your debt if your employer offers this option.

Employers May Help

Another way the CARES Act is helping students is by allowing employers to provide some support. It usually does not increase your income reports on your taxes. It is often a good way to pay down your debt if your employer offers this option.

Who Qualifies for CARES Act Student Loan Relief?

The good news is the CARES Act may apply to many people according to the Federal Trade Commission. This feature of it applies to many students who have federal student loans.

Students who have:

  • Direct Loans
  • FFEL Loans
  • Perkins Loans held by the U.S. Department of Education

Direct loans include Parent PLUS loans, Grad Plus Loans, and Stafford Loans. It also includes consolidation loans. Student borrowers with these loans could qualify for this type of relief.

Some people have FFEL or Perkins Loans not managed by the U.S. Department of Education. If you have a third party lender, the CARES Act provisions typically do not apply to those loans. You typically do not qualify for the student loan forbearance on these loans. You also typically do not qualify for any of the other benefits of these loans. You may be able to contact your lender for help. Your lender may be aggregable to helping you to get through this time.

Also, note that private loans usually do not qualify. This includes any loans held by third party private lenders. It is best to contact the loan servicer to find out if they offer any relief options. This may include student loan deferment. Some loans may also qualify for forbearance through those lenders.

In these situations, you may also qualify for refinancing the loan. This may help to make it more affordable for you to continue to make payments. This may help you if you are behind on the loan as well.

How Do I Apply for the Benefits?

One of the benefits of the CARES Act is that it is simple to use. You often do not have to do anything to start seeing these benefits. That is because this is an automatic process. The law makes the immediate relief provided in these loans automatic. That means if the federal government is collecting payments from you now, it may stop doing so until the end of the year. You do not have to apply for help.

You may be able to find out if you qualify for the benefits easily. To do that, reach out to the U.S. Department of Education. It is also possible to find out if you have a loan that is managed by a federal student loan servicer. This may provide you with information on whether your loan qualifies.

It is important to know that some of these loans are owned by commercial lenders. That includes those who have loans under the Federal Family Education Loan program. Perkins loans are also in this situation. These loans are held by the institution or school that the student attended. That means they typically do not qualify for the protections under this loan program.

Some people may be unsure if they qualify. Contact your loan servicer directly. Ask them about this protection. You may also inquire about any loan program relief they are offering.

Remember, you do not have to do anything in most cases. Instead, the federal government takes action. They may set your interest rate to zero percent (O%). This started on March 13, 2020. It should continue until December 31, 2020.

Some people may want to make payments nonetheless. That is okay to do. It may even be more beneficial to you. Any payments you make during this time is to be applied directly to the principal on the loan. It does not go towards interest. That means your loan payments may go a bit further during this time of the year. You may pay down your debt faster if you decide to make payments now.

You may pay off your loan faster by continuing to make payments during this temporary forbearance period. Borrowers may pay more than what you owe during this time. Making larger payments during this time may offset your loan balance further. This may save you money in the long term. It also makes it easy for you to pay down your debt later since your balance may be lower.

What If You Already Have a Loan That Is Behind?

It is always wise to remain in connection with your loan servicer about your inability to make payments. They work with you in many cases. You may have been doing this. You may have been working with the U.S. Department of Education because you were behind. There are several things to know in this situation according to Federal Student Aid, an Office of the U.S. Department of Education.

As noted, the Department of Education has temporarily stopped making collections on these loans. This may include defaulted student loans (only federal student loans). On March 13, the organization stopped this type of collection activity. You typically do not have to do anything to stop the collections from continuing. Any wage garnishments you were receiving are also no longer going to happen. Again, you typically do not have to do anything for this to happen.

The same may also apply to your Social Security benefits. There is usually no step to take for this to happen. It should occur automatically. If it does not, contact your loan servicer to find out why. It may be due to your loan not qualifying for the program. 

For any other defaulted federal loans contact your loan holder. Find out if there is anything they are able to do help you with the process. You may learn about any type of programs you qualify for right away.

How Do You Manage Student Loan Forbearance?

Are you working on rehabilitation? Some people are working on rehabilitating a defaulted student loan. This is an important step to help you to get back into routine payments. However, you typically do not have to do this right now. If you miss payments during this time, through December 31, those missed payments should not work against you. Your rehabilitation should remain in place throughout this time.

There are other people who are aiming to reach the Public Service Loan Forgiveness Program. The PSLF is an important program. It aims to help many people to stop owing on their debt if they meet specific requirements. There are a few things to know about this program.

  • Only direct loans qualify for the PSLF. These loans are all owed by the federal government. These loans automatically qualify for the CARES Act benefits.
  • Missed loan payments during this time due to the CARES Act should not count against you. In fact, they should count as if you made those payments in full throughout this period.
  • You must still meet other PSLF program requirements. Be sure to know what these are to find out if you qualify for these loans.

Some people have other types of federal loans. These may not qualify for the PSLF benefits. If you are working in public service, you may be able to make a change here. It may be possible to consolidate most of these loans. You may be able to consolidate them into a Direct Consolidation Loan. When you do that, it may qualify as a PSLF loan program. That means you may get all or some of the benefits of the PSLF. That may include this temporary suspension of payments and these non payments counting towards the PSLF requirements.

Another common concern is the impact on a credit score. Making payments does not generally help your credit score. It may reduce your debt. That could benefit your credit score. However, many borrowers do not have to worry about their credit score. Not making payments may not impact them at all during this time.

You should still have a plan for repaying your debt over time. Forbearance may help you avoid default right now during the pandemic. You may still need to make payments over time, though, once this period ends. Keep in mind these things:

  • The CARES Act does not erase any late payments you made prior to March 13, 2020.
  • It does not erase any missed payments you made prior to this date either.
  • It does not change anything happening prior to this date. However, collections activities are set to hold off until after this period ends.
  • You may still call your lender to discuss solutions for long term repayments. If you are behind on your loan, reach out to your lender to find out how to get back on track.

Other Ways to Manage Student Loans During Coronavirus

There are many factors to think about as you work through these loans. One of the questions you may be asking is about refinancing your student loans during this time. Do you have private student loans? Do you want to get a lower interest rate? There are many good reasons to consider refinancing any student loan at any time. During this period, you may do so. It is important to weigh the benefits of refinancing carefully. It may not be the best time to refinance your direct loans, though, into private loans. You may do this is you are comfortable making payments in the long term.

Remember that student loan forbearance right now is temporary, as noted by Federal Student Aid. It does not provide a long term solution to you. If you are unable to make payments at all now and expect for this to continue, always seek out the help of your loan servicer or other solutions.

COVID 19 protections put in place only last until the end of the year, unless extended further. As a result, you may have to consider other solutions for the coming months after this and throughout 2021 and beyond. It is a good time right now to review your budget to find out what those options may be.

Some people may be able to move their loans into deferment. This is a process in which you request a break from loan payments. This lasts for a set number of months or a time frame that fits your needs. Deferment may allow you to pause all payments temporarily, according to Federal Student Aid. It does not offer the same benefits as this temporary relief. You may still have interest charges. You may also still have issues with collections for debts owed prior to this period. Still, for some people, it is a viable option.

Another option is to consider consolidation of student loans, as noted by Federal Student Aid. It may be time for you to create a new federal loan that is a consolidation of multiple loans into one. That is a possible solution for some people struggling to make multiple payments.

It may also be an option to move towards income driven repayment plans. A repayment plan like this could allow for more flexibility. You make payments based on your income at the time. As your income grows, more of it goes towards paying your student loan debts. There are various options available to you in this way. It may be the right option for many borrowers.

Cares Act FAQs for Students

Students with federal student loans may have questions about their repayment options under the CARES Act. There are a few key things you should know about these loans.

What Do You Have to Do to Qualify for a PSLF?

Federal Student Aid offers insights on this. This loan forgiveness program has multiple requirements. One is that you must be employed by the U.S. federal, state, local, or tribal government. Or, you must be employed by a qualifying not for profit organization. You should be working in public service.

You must also work full time. You must have direct loans. You have to repay your loan under an income-driven repayment plan. You have to make 120 qualifying payments. You must be working in qualified jobs.

What If I Am Still in School?

Federal loans typically do not require repayment during school. That means students usually do not have to worry about making payments during the time they are enrolled. You must meet all requirements for this. That means attending a recognized school full time. The Economic Security (CARES) Act does not apply to you in this case. The coronavirus pandemic and coronavirus-related financial struggles you have may apply under different components of the act. Remember, this is emergency relief for those who need it right away.

Does the IRS Know?

You do not have to worry about the Internal Revenue Service right now nor things like gross income or the impact payments have on your taxes. Keep in mind that what the CARES Act is providing through student loan support does not implicate other aspects of support you are receiving. There are other parts of this act that may relate to things like your retirement plan, how filers report income and any rebate you receive.

What About Small Business?

Local governments, federal programs, and other relief options exist under the CARES Act according to theU.S. Department of the Treasury. Many of these provide support for small businesses. TheSmall Business Administrationmay also be able to help you. The SBA provides relief for companies that are struggling. There may be options available for independent contractors as well.

Does Unemployment Compensation Cost You Help?

No. If you are receiving unemployment compensation because of the COVID-19 outbreak, you may not have to worry about losing your benefits for this type of student loan support. The Families First Coronavirus Response Act does not limit you. Keep in mind that the Department of Labordoes not communicate your unemployment compensation with the federal student loan lenders.