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Navigating Student Loan Relief Under the CARES Act

Learn about the CARES Act provisions that provide substantial relief for federally-held student loans, and understand the broader implications for student loan forgiveness during the COVID-19 pandemic.

May 22, 2024
Growth
10 min read

The CARES Act Provisions for Federally Held Loans
The CARES Act was enacted to provide direct financial relief to borrowers with federally held student loans. This landmark legislation introduced automatic payment deferrals, a 0% interest rate period, and a temporary pause on collections activities, significantly impacting millions of Americans burdened by student loan debt during the COVID-19 pandemic.

Automatic Payment Deferrals

The CARES Act implemented an automatic suspension of payments for federally held student loans from March 13, 2020, initially set to last through September 30, 2020. This provision has since been extended multiple times by the Department of Education, with the latest extension running through September 1, 2023. This automatic forbearance applies to Direct Loans and Federal Family Education Loan (FFEL) program loans held by the federal government source.

0% Interest Rate Period

During the payment suspension period, the interest rate on eligible federal student loans has been set to 0%. This means no new interest has accrued on these loans since March 13, 2020. The 0% interest rate applies to all Direct Loans and federally held FFEL loans, alleviating some of the financial burden for borrowers during the pandemic source.

Pause on Collection Activities

In addition to suspending payments and setting the interest rate to 0%, the CARES Act also halted involuntary collections activities on defaulted federally held student loans. This includes wage garnishment and the seizure of tax refunds. Borrowers in default were afforded immediate and significant relief from the threat of collections during this period Source.

Additional Benefits

Importantly, the suspended payments during this period still count towards Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) plans, provided other qualifying criteria are met. This allows borrowers to progress towards loan forgiveness despite the forbearance, which is a crucial benefit for many working in public service roles source.

Staying informed about these provisions can help you manage your student loans effectively during the pandemic. Understanding the specific benefits provided by the CARES Act can help borrowers navigate their financial obligations more efficiently during COVID-19.
Implications of Payment Pauses on Student Loan Forgiveness

Implications of Payment Pauses on Student Loan Forgiveness

Borrowers working towards student loan forgiveness might worry about how the payment pauses will affect their progress. The CARES Act, enacted in March 2020, had a pivotal role in addressing these concerns by implementing several provisions that ensured paused payments would not hinder borrowers’ progress towards forgiveness.

Income-Driven Repayment Plan Forgiveness

The CARES Act suspended federal student loan payments from March 13, 2020, through September 30, 2020, a period later extended several times. During this suspension, borrowers were not required to make payments, but crucially, these months still counted toward the forgiveness requirements for Income-Driven Repayment (IDR) plans source. This means borrowers continued to make progress towards the 20 or 25 years of payments required under their IDR plans without the need to make actual payments. Additionally, the Act set interest rates at 0%, preventing loan balances from growing during this period source.

Another significant update came from the Department of Education, which introduced a one-time adjustment to count certain periods toward IDR forgiveness. This adjustment includes counting any month spent in repayment, some deferment periods (pre-2013), and certain periods of forbearance source. For borrowers nearing the end of their repayment period, this adjustment could provide immediate relief.

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) also saw changes under the CARES Act. Months during the payment pause counted towards the required 120 qualifying payments for PSLF, provided all other criteria were met source. This provision allowed borrowers to advance towards their PSLF goals without making payments, treating these months as $0 payments that still met the requirements source. Importantly, the Department of Education later introduced a limited PSLF waiver, expanding the types of payments and loans that qualify towards the program, significantly benefiting many public service workers source.

Considerations for Borrowers Seeking Forgiveness

Borrowers should remain vigilant about the status of their loans and any changes in their repayment plans. With the payment pause ending September 1, 2023, and payments resuming in October 2023, it’s critical to stay informed about one’s current standing and options source. Borrowers enrolled in IDR plans before the pandemic are not required to recertify until at least September 2024, providing them additional time to adjust source.

Understanding these implications ensures that borrowers remain on track for loan forgiveness despite the challenges posed by the pandemic.
Options for Dealing with Non-Federally Held Student Loans
Borrowers with private student loans or certain types of FFEL and Perkins loans may not automatically benefit from the CARES Act. This section explores various relief options, the benefits and drawbacks of loan consolidation, and strategic payment considerations for these borrowers.

Relief Options for Private Student Loans

Private student loans, unlike federal loans, were not eligible for the widespread relief provided by the CARES Act. However, there are still several options for borrowers struggling with these loans:

  1. State-Level Assistance: Some states negotiated temporary relief agreements with private loan servicers during the pandemic. These agreements often included at least 90 days of forbearance, waiving late payment fees, halting debt collection lawsuits, and ensuring good standing reports to credit bureaus [US News] [Nolo] .
  2. Lender-Specific Programs: Many private lenders offer hardship programs that may include short-term forbearance, deferment, interest-only payments, fee waivers, or lower interest rates [Bankrate].
  3. Refinancing: If your financial situation has improved, refinancing could lower your monthly payments or secure a better interest rate [Credible] .
  4. Employer Assistance: Some employers provide repayment assistance benefits, offering up to $5,250 tax-free for student loan payments annually [US News].
  5. Communication with Lenders: It’s essential to contact your servicer if facing financial difficulties. They may offer alternative repayment plans or other forms of assistance [Bankrate] [Nolo] .

Benefits and Drawbacks of Loan Consolidation

Consolidating FFEL and Perkins loans into a Direct Consolidation Loan provides several advantages and disadvantages that borrowers should consider:

Benefits:
1. Access to More Repayment Plans: Consolidation allows these loans to be included in more income-driven repayment plans, potentially reducing monthly payments [Federal Student Aid].
2. Public Service Loan Forgiveness (PSLF): Consolidated loans become eligible for PSLF, which is otherwise not available for unconsolidated loans [Student Loan Borrower Assistance].
3. Simplified Repayment: It combines multiple loans into one, creating a single monthly payment and one loan servicer [Student Loan Borrower Assistance].
4. Fixed Interest Rate: Older loans with variable rates are consolidated into one fixed-rate loan [Student Loan Borrower Assistance].

Drawbacks:
1. Loss of Cancellation Benefits: Perkins Loans may lose cancellation benefits post-consolidation [Student Loan Borrower Assistance].
2. Interest Rate Increase: The new interest rate is the weighted average of the existing loans, rounded up, which could be higher [Student Loan Borrower Assistance].
3. Loss of Repayment Strategies: Borrowers can’t target higher interest loans for quicker payoffs [Student Loan Borrower Assistance].
4. Resetting Forgiveness Progress: Payments towards IDR forgiveness reset post-consolidation [Federal Student Aid].

Strategic Payment Considerations for Borrowers

To manage non-federal student loans during the pandemic strategically, consider these tips:

  1. Refinance If Possible: If you have good credit and a steady income, refinancing can lower your rate and expedite payoffs, but avoid refinancing federal loans to maintain protections [Bankrate].
  2. Set Up Autopay: Many lenders offer a 0.25% interest rate reduction for automatic payments [NerdWallet].
  3. Make Extra Payments: Apply additional payments to the highest interest rate loans to save money over time [CBS News].
  4. Create a Budget: Allocate maximum possible funds towards loan payments each month [CBS News].
  5. Explore Repayment Options: Discuss alternative plans with your lender if needed [CBS News].
  6. Avoid Risky Refinancing: Do not use credit cards or home equity loans for student loan payments as they can increase long-term costs and risks [CBS News].

Evaluating these options helps borrowers make informed decisions about their non-federal student loans during the pandemic.
Contacting Loan Servicers for COVID-19 Relief
Reaching out to loan servicers can provide clarity and access to additional relief options tailored to individual circumstances.

Steps to Take When Contacting Loan Servicers

Taking proactive steps when contacting your loan servicer can help you navigate the myriad of relief options available during the COVID-19 pandemic. Here are effective steps to consider:

  1. Identify Your Loan Servicer: For federal student loans, locate your servicer on the Federal Student Aid website or on your most recent loan statement.

  2. Choose Your Communication Method: Servicers typically offer phone and online contact options. Major federal loan servicer numbers include FedLoan Servicing (1-800-699-2908), Nelnet (1-888-486-4722), Navient (1-800-722-1300), and others.

  3. Gather Necessary Documents: Be ready to discuss your financial situation and the relief options you’re seeking. Include your loan or application number in the communication.

  4. Ask Key Questions: Inquire about eligibility for income-driven repayment plans, Public Service Loan Forgiveness (PSLF), and other assistance programs.

What to Expect from Loan Servicer Interactions

When engaging with your servicer, it is essential to be prepared and informed about the specifics of your loan and available relief options.

  • Payment Plans and Forgiveness Programs: Discuss eligibility for various repayment plans, including income-driven options, which cap payments based on income and family size. These might significantly reduce your monthly burden (VantageScore, 2023).

  • Effect of Relief Measures: Understand how the pandemic-specific relief measures, such as the 0% interest rate suspension under the CARES Act, impact your loan (Federal Student Aid, 2023).

  • Clarify Loan Status: Whether you are applying for deferment, forbearance, or other hardships relief, request a confirmation of how these actions will be documented and the processes surrounding them.

Additional Support Beyond the CARES Act

While the CARES Act provided significant relief for federal student loan borrowers, additional support is available that can further alleviate financial strain.

  • Employer Educational Assistance: The expansion of employer educational assistance under CARES allows for up to $5,250 in employer contributions towards student loans to be tax-exempt through January 2026 (Compass Initiative, 2024).

  • State-Level Programs: Various state-level forgiveness programs target specific fields such as teaching and nursing, providing additional avenues for relief (ISAC, 2024).

  • Private Loan Adjustments: Private loan borrowers should explore lender-specific relief options that may not be covered under federal relief measures, such as payment reduction or suspension programs (Credible, 2024).

Proactively engaging with loan servicers can ensure you make use of all available resources and navigate the challenges of the pandemic more effectively.
Evaluating Future Considerations and Developments

Evaluating Future Considerations and Developments

Staying informed about future developments is essential for managing student loans during and after the COVID-19 pandemic. Anticipating potential future actions can help borrowers prepare better and take advantage of any new relief opportunities that arise.

Potential New Federal Actions

The Biden-Harris Administration has been actively proposing and implementing several initiatives aimed at providing student loan relief. A significant aspect of these efforts includes plans to cancel up to $20,000 of unpaid interest for over 25 million borrowers, directly benefiting low and middle-income individuals enrolled in income-driven repayment plans source. Additionally, borrowers who have been repaying loans for over 20 years (undergraduate) or 25 years (graduate) may be eligible for complete loan forgiveness, impacting approximately 2.6 million borrowers source.

Moreover, the administration is developing plans to cancel debt for borrowers experiencing economic hardship, such as those facing high medical debts or childcare costs. This could include automatic relief for those at high risk of defaulting source. The Department of Education is also proposing rules for automatic discharge of debt for eligible borrowers who have not yet applied source.

State-Level Initiatives for Student Loan Relief

Across the United States, 47 states along with the District of Columbia and Puerto Rico, offer various student loan forgiveness programs tailored to their residents source. For example, Minnesota boasts ten different student loan forgiveness programs, while New York and Texas each offer nine source.

Most state programs focus on attracting professionals to specific fields or underserved areas, with common eligibility extending to healthcare workers, teachers, lawyers, and veterinarians. Programs typically act as Loan Repayment Assistance Programs (LRAPs) providing funds for loan repayment in exchange for qualifying service. Unlike federal programs, these can often be used to repay both federal and private student loans source.

Monitoring Updates from Schools and Lenders

The Department of Education continues to roll out significant updates. Recently, the Biden-Harris Administration announced an additional $7.7 billion in student loan debt relief for 160,500 borrowers source. This includes notable elements such as reducing monthly payments from 10% to 5% of discretionary income for undergraduate loan borrowers enrolled in the SAVE Plan source.

Borrowers should stay vigilant for these developments by regularly checking official resources such as the Department of Education website and subscribing to updates from student loan servicers. Keeping abreast of developments ensures that borrowers can react swiftly and optimize their student loan management strategies.

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