What to Know About the CARES Act and Student Loans
To ease some of the burdens of United States citizens during this time of heightened unemployment, Congress announced the Coronavirus Aid, Relief, and Economic Security (CARES) Act. One of the most notable measures within this bill is the suspension of federal student loan payments from now until September 30, 2020. Millions of taxpayers have outstanding student loan balances and may benefit from this provision. If you carry a student loan balance, here’s how the CARES Act may impact you:
Suspension of required payments, interest accrual, or wage garnishment
The CARES Act automatically stopped federal student loan payments and paused the accrual of interest through the end of September 2020. Additionally, it suspended the garnishment of wages for student loan debt collection throughout the same time frame.
Although payments are not required, if you choose, it can still be a good idea to pay down your loans, especially while the interest isn’t accumulating.
Student loan forgiveness programs
If you are in the process of having your federal student loans forgiven, this provision benefits you too. Should you choose to bypass your payments until September 30th, the time period between now and then will still count toward your forgiveness program.
Tax-free employer contributions to your student loans
Typically, if your employer pays any amount of your outstanding student loan balance, it is considered income to you and thus taxable. However, this bill makes any student loan payments tax-free, up to $5,250, if made by your employer before January 1, 2021.
If you’re eligible for bonuses, talk to your employer to see if they’d be willing to pay your bonus directly to your loan provider instead of to you. The higher your income, the greater this short-term benefit is to you!
Waived obligations for certain students
Finally, if you left college before completing 60% of the semester, you’re normally required to repay unused Pell Grant funds to the government. However, if you left due to a “qualifying emergency”, that repayment requirement is now waived along with the obligation to repay direct loans taken out to cover that period.
You can find more information on points 1, 2, 3, and 4 in the CARES Act under Sections 3513, 2206, and 3508 respectively.