CARES Act Part VI: What Federal Student Loan Borrowers Should Know

The new Coronavirus Aid, Relief, and Economic Security (CARES) Act has been passed, creating a $2 trillion emergency stimulus package. By now, most people have heard that a good portion of taxpayers will be receiving checks from the government and that the deadline to file your taxes has been extended to July 15, 2020. In addition to these benefits, the CARES Act also provides relief for individuals who have Federal Student Loans by suspending payments through September 30, 2020. While no interest will accrue on current outstanding student loan debt and payments will not be required, borrowers will still have the option to continue voluntary payments toward outstanding interest and principal balance(s). For those who currently utilize auto-pay, payments will continue to be processed unless the individual contacts their loan provider to request an administrative forbearance until September 30.

Although Federal Student Loan payments are being deferred until September, this period of time will continue to count toward any loan forgiveness programs. Students who are currently borrowing money and who intend to qualify for a forgiveness program should immediately pause payments. If they fail to do so, they will be effectively paying on a debt that will eventually be forgiven. It is best to pause payments for the time being and resume after the September 30 deadline.

(It should also be noted that involuntary debt collections have also been suspended. During this time, there will be no wage garnishment, reduction of other Federal benefits, or reduction of any tax refunds for student loan purposes.)

The passing of this act has also presented employers with the opportunity to take advantage of special rules to help their employees pay down student debt. Normally, amounts paid by an employer to an employee would be considered compensation to the employee and would be subject to income tax. However, the CARES Act allows employers to provide employees with up to $5,250 for student loans while excluding those amounts from their income.

Pell Grants and Subsidized Federal Student Loans have been likewise affected. With the CARES Act, any period of enrollment (semester) that a student does not complete due to a qualifying emergency will be excluded. Additionally, if a qualifying emergency requires a student to withdraw from school mid-semester, the CARES Act will eliminate amounts awarded via Pell Grants that would normally require repayment.

The scale of the CARES Act is unprecedented. $2 trillion is an unfathomable number. (I will write it down just for reference: $2,000,000,000,000.00.) The suspension of student loan payments is merely a small portion of this massive relief program. If you would like to know more about the impacts of the CARES Act, I’ve linked additional information below and I encourage you to reach out to our team with any questions you may have.

Additional Information:

CARES Act Part I: Key Provisions Explained

CARES Act Part II: The Paycheck Protection Program Explained

CARES Act Part III: Employee Retention Credit Provision For Employers

CARES Act Part IV: COVID-19-Related Distributions & Loans

CARES Act Part V: Tax Consequences & Your Minimum Required Distributions

CARES Act Part VII: Implications for Health Care Patients and Providers

Brent Schafer