COVID-19 & CARES Act Financial Planning Series: #2 "Taking a Break From Student Loan Payments"
The 335-page CARES Act includes several provisions aimed at providing relief to student loan borrowers. Here are a few to consider:
Federal Student Loans
Section 3513 suspends required payments on Federal student loans through September 30, 2020. During this time, no interest will accrue on this debt. As of April 2, 2020, the Federal Student Aid website is now updated with the CARES Act information. This website specifically states that payments will automatically stop from March 13, 2020 through Sept. 30, 2020 in what is termed an “administrative forbearance”. There is no action that is needed to be taken by the borrower. However, if you choose to continue to make payments during this timeframe, the full payment will be applied to principal. If you would like to do this, you will need to contact your loan servicer to opt out of the administrative forbearance and resume your auto-debit payments.
Loan Forgiveness Programs
Also notable is that this period of time will continue to count toward loan forgiveness programs. As such, this time frame will be very beneficial for any student borrower who intends to qualify for a program that will ultimately forgive the entirety of his/her Federal student debt, such as the Public Service Loan Forgiveness (PSLF) program.
The Federal Student Aid website states “If you have a Direct Loan, were on a qualifying repayment plan prior to the suspension, and work full-time for a qualifying employer during the suspension, then you will receive credit toward PSLF for the period of suspension as though you made on-time monthly payments.”
Private Student Loans
Unfortunately, the CARES Act does not provide any help or relief from private student loan payments.
Involuntary Debt Collections
All involuntary debt collections are suspended through September 30, 2020. This includes wage garnishment and the reduction of any tax refund (for student loan purposes).
Planning Opportunities
If you are trying to pay down your student loans as quickly as possible, this could be an excellent time to continue your normal payments at 0% interest that will be fully applied to principal. If you are seeking loan forgiveness, you could take this “break” from paying your student loans and instead apply your payment toward other debt (such as credit card debt) or rebuilding your emergency savings account.
IMPACTfolio’s COVID-19 & CARES Act Financial Planning Series
For more detailed information on all financial aspects of the CARES Act, we recommend that you read this excellent article.
 | Julie Fletcher McDaniel, CFP®, has been in the financial services industry since 2006. She is a co-founder of IMPACTfolio, a wealth management firm that specializes in IMPACT investing and holistic financial planning for one flat-fee. |