Coronavirus Stimulus: 5 Things Student Loan Borrowers Should Know
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, will help most federal student loan borrowers by temporarily pausing payments -- including principal and interest -- on federally held student loans through Sept. 30.
These borrowers, under the $2.2 trillion congressional stimulus bill signed into law on March 27 by President Trump, will not be required to make payments on their loans for this six-month period. Interest will not accrue during this time, which means that these borrowers will not see their balances grow as the result of not making payments for six months.
The CARES Act also suspends involuntary collections, which includes wage garnishment and the reduction of tax refunds or other federal benefits, for qualifying borrowers who are in default. The U.S. Department of Education recently announced that it will refund to more than 830,000 borrowers approximately $1.8 billion in offsets that were being processed when the pandemic was declared a national emergency on March 13.
Here are five things student loan borrowers should know about these changes, which were implemented to blunt the severe economic impact of the COVID-19 virus pandemic:
-- The temporary pauses are automatic.
-- Not all federal student loans qualify.
-- The pause does not apply to private student loans.
-- Borrowers get six months toward loan forgiveness and loan rehabilitation programs.
-- You may want to continue making payments, if possible.
The Temporary Pauses Are Automatic
For qualifying borrowers, the CARES Act will pause student loan payments and involuntary collections automatically, giving those who are dealing with sudden financial changes due to the coronavirus outbreak one less thing to worry about.
[Read: 7 Apps That Can Help You Pay Off Student Loans.]
Earlier in the public health crisis, borrowers with federally held student loans were advised to apply for a two-month COVID-19 administrative forbearance. The CARES Act replaces the need to seek this forbearance by providing an automatic six-month pause.
Being aware of this can help you avoid student loans scams. You should not have to pay a fee for the temporary pause or interest waiver. If someone contacts you to fill out paperwork or asks for money, it is a scam and you should report the party to the Federal Trade Commission's complaint assistant.
Not All Federal Student Loans Qualify
While the new automatic pause on payments and involuntary collections will provide relief to the majority of federal student loan borrowers, the CARES Act excludes borrowers with Perkins loans and commercially held Federal Family Education Loans, or FFEL loans. These are typically older loans -- these programs no longer exist -- but there are still many borrowers who are repaying them and will not receive the temporary benefits.
If you're not sure what types of student loans you have, contact your loan servicer to find out. If you have an online account with your loan servicer, you can also check there to see whether the benefit was applied to your account.
[Read: When to Contact Your Student Loan Servicer.]
If you find that your student loan was excluded from the temporary benefits, you can still seek relief by contacting your loan servicer to apply for income-driven repayment or forbearance.
The Pause Does Not Apply to Private Student Loans
The temporary pause in payments applies only to federally held student loans. If you have private student loans, you can contact your loan servicer to see what options are available to you. Many servicers offer options to postpone payments, such as forbearance.
Borrowers Get Six Months Toward Loan Forgiveness and Loan Rehabilitation Programs
Under the CARES Act, each month during the temporary pause will count as if the borrower had made a payment for a loan forgiveness or rehabilitation program.
[READ: How to Use Student Loan Rehabilitation to Recover From Default.]
That's good news for qualifying borrowers who are working toward loan forgiveness programs, like Public Service Loan Forgiveness, or trying to rehabilitate a defaulted loan. The goal is to help borrowers stay on track toward their goals during this period of uncertainty.
You May Want to Continue Making Payments, if Possible
If you can continue to make student loan payments during the temporary pause, you may want to consider doing that. In fact, making payments while your student loan is not accruing interest will help you pay it off faster.
Your full payment will be applied to the principal amount of your loan, which means your balance will go down much faster with each payment. Chipping away at a significant amount of your student loan during this time of the coronavirus outbreak will reduce the amount of interest you pay over the long term.
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