CARES Act Provides Relief to Federal Student Loan Borrowers

April 1, 2020 | Kitt Tovar


On March 13, 2020, President Trump announced all student loan interest would be suspended due to the Covid-19 outbreak in the United States. On March 27, 2020, the President signed the CARES Act into law. Intended as an economic stimulus package, this law has several important changes for federal student loan borrowers.

Employer Payments of Student Loans

Section 2206 of the CARES Act expands current law regarding educational assistance programs. Previously, employers could reimburse their employees for up to $5,250 for tuition assistance programs. Now, this amount can now include student loan payments and will be exempt from the employee’s taxable income. This amount can be made either on behalf of the employee or reimbursed to the employee.

Student Loan Interest Rates Set to 0%

Another change impacting all federal student loan borrowers is a temporary 0% interest rate. The loans included in this are Direct Loans, Federal Family Education Program Loans (FFEL), and Federal Perkins loans. These loans must be owned by the Department of Education and not a commercial lender to qualify.

This interest rate is retroactive to March 13 and will last until September 30. No action is required to obtain this as the Department of Education will automatically adjust the interest rate. Some companies are still working to set the interest rate to 0%. Any interest accrued will be retroactively waived. Private loans are not eligible for the 0% interest rate.

Temporary Suspension of Payments

Section 3513 of the CARES Act also places all federal loans into administrative forbearance. This means all federal student loan borrowers are no longer required to make payments until September 30. These suspended payments will count towards both Income Driven Repayment forgiveness and Public Service Loan Forgiveness. Additionally, any payment made between March 13 and September 30 can be refunded. Loan servicers should be in contact no later than August to remind borrowers payments will soon need to begin again.

While borrowers do not need to make payments at this time, if you are currently experiencing a change in income, you can talk to your loan servicer about different options such as enrolling in an income-driven payment plan. For borrowers who wish to continue to pay, you can continue to make payments of any amount. The entire amount will be applied directly to the principal after all interest accrued before March 13 is paid. Partial payments will be accepted.

Defaulted Student Loans

Normally, student loan borrowers who are in default will have their wages and tax refund garnished. Now, the Department of Education will reimburse borrowers who tax refund was in the process of being withheld on or after March 13. Borrowers who have defaulted will no longer have their wages garnished.

While some federal loan providers have implemented all or some of these changes, several are still working towards this directive. No formal regulations have been issued, but you can find more information on the Federal Student Aid website.