How The CARES Act Affects Federally-Owned Student Loans
Updated on April 22, 2020
The coronavirus pandemic has changed many things. Student loans are an aspect, in particular, drastically affected by COVID-19. President Trump signed the CARES Act on March 27, 2020, to provide relief to those left unemployed by the current health crisis that has stopped the global economy in its tracks. Those whose student loans are owned by the federal government should understand what the act means for their repayment plans.
What is the CARES Act?
The CARES Act is an economic stimulus meant to provide relief to unemployed individuals who lost their jobs because of COVID-19. The new measure provides 13 additional weeks of unemployment compensation from the federal government. Such time is given on top of the standard 26 weeks of maximum unemployment benefits that states provide to approved applicants.
How does the CARES Act affect student loans?
The CARES Act is a temporary measure that reduces the interest rate for student loans to zero percent. The act also automatically places loans in forbearance from March 13, 2020, to September 30, 2020. Borrowers do not have to make scheduled monthly payments during this time.
Those who make payments through the automatic debit system do not have to make changes. The administrative forbearance placed on federally owned student loans automatically halts withdrawals.
Who qualifies for administrative forbearance due to the CARES Act?
Only loans owned by the United States Department of Education (ED) qualify for benefits associated with the CARES Act. These loans include:
– William D. Ford Federal Direct Loan Program (Direct Loan)
– Federal Family Education Loan Program (FFEL)
– Federal Perkins Loan Program (Perkins Loan)
Those experiencing financial difficulty with private loans from banks will need to contact their financial institutions directly to make payment arrangements.
Things to remember
It is important that borrowers understand that the current forbearance status of their federally-owned loans is temporary. Borrowers will need to resume monthly payments in October to avoid late fees and other penalties.
Loans that qualify for administrative forbearance will not be reported as delinquent during the temporary holding period (March 13 – September 30). It is important, however, for borrowers to communicate with their lenders if they need different repayment terms beyond September 30, 2020.