Six Ways the CARES Act May Impact Your Student Loans
Content origianlly published on Lets Make A Plan
As the nation copes with the economic impact of the COVID-19 pandemic, millions of Americans are struggling to repay their federal student loans.
However, if you have student loans, you may be eligible for a temporary repayment reprieve. The CARES Act—the federal financial relief bill signed into law in late March—includes provisions to help Americans holding federal student loans.
Here are six things you need to know about how the CARES Act may impact your student loans:
Borrowers with federal student loans are permitted to suspend payments until September 30, 2020. During this period, the federal government will waive interest that would normally accrue. Borrowers will owe no more at the end of September than they owed when the law took effect in March.
Borrowers who opt to continue making payments during this time can do so. Alternatively, borrowers who are capable of paying their monthly student loan bill now, but are concerned about their ability to continue making payments in a few months, could suspend payments now to build an emergency fund for later use.
Individuals who continue their making payments before September 30 will see their payments have a bigger impact on their loan balances. More of their payment will go toward the principal balance, which will shorten their pay-back period.
Stopping payments during this time will not hurt borrowers who are participating in the federal Public Service Forgiveness program. This program grants loan forgiveness after 120 monthly payments to participants who have public service jobs. The skipped payments will count toward the 120-month total.
Collections on overdue federal college debt will be halted until September 30. This action includes garnishment of wages, tax refunds and Social Security benefits.
It is important to note that none of these provisions impact private college loans. Borrowers who are struggling with their private college loan payments should contact their lender and student loan servicer to ask for relief options.
Connect with a CFP® professional to understand how the new legislation may affect your unique financial situation.