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Coronavirus Student Loan Relief: How the CARES Act Can Help You with Payments

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If the coronavirus pandemic has impacted your financial situation and you’re struggling to pay your student loans, don’t panic — you’ve got options. It may not feel that way, but recent legislation could provide some much-needed relief to those trying to get out of debt.

Here’s everything you need to know about coronavirus student loan relief and how to defer student loans if your payments aren’t already suspended.

In this article

  • How coronavirus has impacted student loan repayment
  • Student loans and the CARES Act: FAQs
  • 5 ways to get help if you don’t qualify for coronavirus student loan relief
  • The bottom line on coronavirus student loan relief

How coronavirus has impacted student loan repayment

COVID-19 has wreaked havoc on the U.S. economy and caused more than 30 million people to file for unemployment benefits in just six weeks. In March, a DadeLoan survey revealed that 72% of Americans feared an imminent recession. As unemployment continues to rise, that percentage will likely increase as well.

In response to these difficult times, the federal government signed the Coronavirus Assistance, Relief and Economic Security Act into law.

The $2.2 trillion stimulus bill provides relief for taxpayers and businesses alike, and a major part of the bill addresses federal student loans. More specifically, the bill includes provisions to assist borrowers who have student loans held by the federal government. If you’re eligible, here’s what to know about student loans and the CARES Act:

  • The U.S. Department of Education has automatically suspended loan payments on Direct Loans and Federal Family Education Loans held by the federal government through September 30, 2020.
  • Interest will not accrue on eligible loans during the suspension period.
  • Suspended payments will count toward requirements under the Public Service Loan Forgiveness program and income-driven repayment plans.
  • Involuntary collections are also suspended, including wage and Social Security garnishments and tax refund offsets.

Unfortunately, some FFEL loans are held by commercial lenders and don’t qualify. Perkins Loans are also excluded from the bill. According to The Institute of College Access & Success, those loans make up 12% of all federal loan money. Also, private student loans aren’t included.

That said, this coronavirus student loan relief bill provides significant assistance to people who need it, and you don’t have to do anything to request the suspension — it’s automatic, and has likely already started.

Student loans and the CARES Act: FAQs

The CARES Act answered a lot of questions about what’s going to happen to student loan borrowers, but many people still have questions about who’s eligible and the process. Here are the most common questions we found.

Will student loans be forgiven in 2020?

The CARES Act doesn’t forgive student loan debt. In fact, though payments are suspended through September 30, 2020, the federal government isn’t making those payments for you. Rather, your repayment term will be extended for the number of months your payments were suspended.

That said, you won’t be charged interest during the suspension period, so you don’t have to worry about coming out of the suspension period with a higher principal balance.

Are student loan payments on hold?

The U.S. Department of Education has automatically suspended payments for all borrowers with student loans held by the federal government. Unfortunately, this doesn’t include federal loans held by commercial lenders or campus-based loans.

The suspension period currently ends on September 30, 2020.

Are Stafford loans covered under the CARES Act?

Stafford Loans are under the FFEL Loan program and are eligible under the CARES Act as long as they’re held by the federal government. Unfortunately, some older Stafford loans are held by commercial lenders instead, and these loans aren’t covered under the bill.

How do you tell if you qualify for relief under the CARES Act?

The CARES Act was signed into law in late March, so if you qualify for assistance, it’s likely that your student loan payments have already been suspended. If you’re not sure, log in to your online account to check for a message from your servicer, or call them directly to find out whether your loans are eligible for suspended payments.

What are your options if you’re about to default on your student loan payments?

Defaulting on student loans can wreck your credit history, so it’s important to do everything you can to avoid it. If you’re struggling with how to pay off debt, reach out to your lender and ask about modified payments or forbearance options. It may even be worth asking for help from family members.

Unfortunately, although bankruptcy is an option for people with many types of debt, it can be incredibly difficult to get student loans discharged through bankruptcy.

How do you defer student loans?

Reach out to your lender to find out how to defer your student loans and what options they have available. Actual terms can vary depending on your circumstances and your lender’s policy, so they are your best resource for how to move forward with that option.

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5 ways to get help if you don’t qualify for coronavirus student loan relief

If you have student loans that aren’t covered under the CARES Act, you may be disappointed to still have monthly payments to deal with. Fortunately, there are some things you can do to get the help you need.

1. Contact your lender

Many private lenders offer forbearance options for people who are experiencing financial hardship, and some are even providing special relief in response to the current economic crisis.

You may be thinking that telling your lender you can’t afford your payments is a bad thing. But lenders are incentivized to work with borrowers who are struggling financially because pausing payments for a few months while you get back on your feet is much better than watching you fall behind on payments and ultimately default because you can’t catch up.

2. File for unemployment benefits

With more than 30 million workers across the country filing for unemployment benefits in the last six weeks, there have been significant delays in receiving payments, let alone getting a response.

However, if you’ve recently been laid off, the sooner you start the filing process, the faster you’ll receive the relief you need. Also, many states offer retroactive payments based on when you first filed. What’s more, the extra payments provided for by the CARES Act — that’s $600 on top of your state’s benefits and an additional 13 weeks beyond your state’s maximum benefit period — are also retroactive.

Unemployment benefits may not be enough to replace your income completely, but they can provide enough cash to cover many of your essential expenses, including student loan and other debt payments, if you can’t get relief from your lender.

3. Tap into your emergency fund

If you’ve set aside some cash for a rainy day, now is a great time to use it to cover some of your expenses. Depending on how much you have in your emergency fund, though, you may need to be strategic about how you use it.

When you’re thinking about how to prioritize bills, ensure you pay your most important expenses first — after all, missing a payment on student loans can damage your credit, but missing your rent payment can cause you to be evicted.

4. Cut back on discretionary spending

If you were struggling financially before the pandemic began, you may already have few expenses beyond what’s necessary. But if your money situation was in relatively good shape, there may be some opportunities to cut back on your spending and use that money to make student loan payments instead.

For example, take a look at your cable and streaming subscriptions, takeout costs, and other expenses that you can put on pause for a short time period. Apps such as Truebill and Trim can help you determine where to cut costs. Try to find a balance between making sure your necessary expenses are covered while protecting your mental health.

5. Consider refinancing your student loans

The Federal Reserve slashed its federal funds rate to 0% in March, which caused many lenders to also cut their interest rates on loans and credit cards. As a result, now is a good time to consider student loan refinancing to see whether you can get a lower interest rate than what you’re currently paying.

Of course, not everyone qualifies for a student loan refinance — you typically need to have a strong credit history and a relatively high income, or at least have a cosigner with those traits. So if you’ve lost your job and don’t have a cosigner, this is a non-starter.

However, if you’re still working or have a spouse or family member whose job is still intact, you may be able to refinance your loans and reduce your monthly payment. Take your time to shop around and compare rates from several lenders before pulling the trigger. Also, do your research and think hard about whether this is the right move for you at this time.

The bottom line on coronavirus student loan relief

The coronavirus pandemic has put a financial strain on millions of people, and if you’re struggling, you’re far from alone. Fortunately, the federal government and many private lenders have provided some options for relief with your student loan payments.

Don’t be afraid to take advantage of these benefits, even if you’re not struggling right now. With so much uncertainty surrounding the pandemic and its long-term impact on the economy, do everything you can to protect your financial health.

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