As part of the coronavirus relief package, student borrowers will receive a three-month reprieve from loan payments.
The Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, was passed into law on March 27, 2020. The CARES Act has numerous provisions aimed at providing relief to businesses and individuals affected by the coronavirus outbreak – including student borrowers.
Many working Americans are still paying off their student loans (with an average balance of over $35,000, according to Experian) and are facing economic hardships due to the coronavirus outbreak. As a result, the CARES Act includes the following provisions:
- Suspended loan payments. Payments on federal student loans are suspended for three months until June 30. It’s possible that another three-month suspension will follow, which would extend the relief period to September 30.
- No interest. Interest will not accrue on a suspended loan for the duration of the suspension.
- No impact to loan forgiveness programs. Suspended payments will be considered as a complete payment for federal student loan forgiveness programs.
- Tax benefit for employer assistance. Student loan repayment assistance payments made by employers will be tax-free up to $5,250 per employee.
- Suspended wage garnishment. Wage garnishment – when an employer is required to send a portion of your earnings straight to the lender – is suspended. Wages garnished for student loan repayments since March 13, 2020, will be repaid to impacted individuals.
Note that private student loans and federal loans held outside of the Department of Education will not receive relief from the CARES Act. Another important caveat? These provisions have no impact on any automatic payments you may have in place, so should you wish to take advantage of the suspension, you’ll need to take action to pause them.
While the suspension of payments doesn’t provide the same amount of relief as outright forgiveness, it allows borrowers to focus their financial resources on other expenses such as food, housing or high-interest debt. Remember, student loan interest won’t accrue and federal student loan forgiveness programs won’t be impacted during the suspension period, so student borrowers will pick up right where they left off.
Please reach out to your financial advisor or tax professional with any related questions.