The $2 trillion Coronoavirus Aid, Relief, and Economic Security (CARES) Act includes some relief for people with federal student loans.
Effective March 13, all interest on federal student loans will be temporarily suspended for the foreseeable future. This allows individuals the ability to essentially pay down student loan debt, interest free, until this provision is lifted.
Furthermore, the economic stimulus package includes a provision that will allow individuals to suspend payments on federal student loans for at least 6 months (through Sept. 30, 2020). While these loan payments are suspended, they will not accrue any interest during this 6-month period. If you are currently making payments aiming for Public Service Loan Forgiveness (PSLF) or taxable forgiveness under an Income-Driven Repayment plan, those 6 months of $0 payments will count as qualifying payments toward future forgiveness. Note that for PSLF, this is only true if you remain employed full-time at a qualifying employer during those months.
The legislation also applies to those using FedLoan Servicing, since FedLoan is a Federal Department of Education loan servicer (along with a number of others such as Great Lakes, Navient, Nelnet, etc.).
Also, any and all outstanding interest will still have to be paid off; only future interest will be temporarily frozen. Finally, please note that this policy is not permanent in nature and is only a temporary solution to help offset some of the financial strain caused by the COVID-19 outbreak.
Now that the legislation is formally passed and signed into law, the changes will be made directly at the respective federal institutions over the coming days and most borrowers will not have to proactively reach out and make any changes to their payment plans. The Act requires the Secretary of Education to notify borrowers for whom payments have been suspended and interest waived, or for whom involuntary collection has ceased, within 15 days of these changes. The notification will also inform borrowers of the option to continue making payments toward principal. Beginning Aug. 1, 2020, the Act also requires the secretary to give each borrower a notice at least six times, stating when the borrower’s normal payment obligations will resume and that the borrower has the option to enroll in income-driven repayment.
If you would like to have a further conversation around how this legislation could potentially impact your financial life, contact a member of our team.