What the CARES Act means for your student loans — everything you need to know

The CARES Act can make managing student loan debt easier in the short-term. (iStock)

The federal Coronavirus Aid, Relief and Economic Security (CARES) Act created a number of initiatives to help Americans who are struggling financially as a result of the coronavirus crisis. A key part of the Act was designed to offer relief to borrowers who owe federal student loans. Here's what you need to know about the CARES Act and student loans.

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What the CARES Act does for student loan borrowers

If you owe federal student loans, there are a few ways the CARES Act can help make them more manageable. The most important benefits include:

  • Student loan payments are suspended through September 30, 2020 for Direct Loans and Federal Family Education Loans (FFEL)
  • No interest accrues on your loans during this temporarily student loan forbearance period
  • Suspended student loan payments will still count toward the required payments for Public Service Loan Forgiveness (PSLF)
  • Not making payments to loans eligible for forbearance during this time won't count against your credit history
  • Collection actions for federal student loans, including tax refund offsets, wage garnishments and social security garnishments, are suspended temporarily
  • Your employer can pay up to $5,250 toward your student loan debt for you through the end of 2020, without it being counted as part of your taxable income

Of those benefits, the most helpful may be student loan forbearance. Being able to temporarily pause payments through the end of September could be welcome if coronavirus has caused you to take a pay cut.

Who qualifies for CARES Act student loan relief

CARES Act benefits are designed to help you if you owe federal student loans. That includes:

  • Direct Loans (including Stafford, Grad PLUS, Parent PLUS and Consolidation loans)
  • FFEL Loans
  • Perkins Loans that are held by the U.S. Department of Education

If you have FFEL or Perkins Loans owned by a third-party lender that isn't connected to the Department of Education, the CARES Act provisions won't extend to them. You also won't qualify for student loan forbearance and other benefits for private student loans. But you can check with your loan servicer to see if they offer relief options, such as deferment or forbearance periods, or consider a refinance of the loan. An online marketplace like Credible can help you find the right plan for you.

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How to manage student loan forbearance

If your federal student loans are currently in forbearance under the CARES Act, you may have questions like:

  • Should I pay my student loans during forbearance if I can afford it?
  • How will student loan forbearance affect my credit score?
  • Can forbearance help me avoid default? 

If you're able to pay your loans during a forbearance period, doing so could help make a larger dent in what you owe. According to the Department of Education, payments made during the temporary forbearance period are applied directly to your loan principal.

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In terms of credit score impact, the CARES Act says that any suspended payments owed during the forbearance period will be reported to the credit bureaus as if you'd made them. And if you fell behind on loan payments prior to the Act's enforcement, debt collectors are not allowed to contact you about your loans through Sept. 30, 2020.

But the Act won't erase any late or missed payments that were previously reported to the credit bureaus. If you're in danger of defaulting on federal student loans, the Act may delay it but not prevent it if you don't reach out to your lender to discuss long-term solutions.

Should I refinance my student loans? 

Refinancing student loans is something you may consider if you have private student loans and are interested in getting a lower interest rate. With refinancing, you're getting a new loan to pay off your existing student loans, ideally with a lower rate and a lower monthly payment. You can use Credible's free online tool to compare multiple lenders within minutes.

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Refinancing private student loans typically involves a credit check so you may need to consider having a cosigner to qualify. If you're interested in a refinance, take time to estimate your potential interest savings and your new monthly student loan payments to determine if it makes sense.

Other ways to manage student loans during coronavirus

Student loan forbearance can help if you're having difficulty making loan payments because of the COVID-19 pandemic. The most important thing to remember is that this is only temporary and you'll need to review your budget to make sure you can continue making payments once forbearance ends.

If you're still having a hard time with loan payments beyond September, there are other options. For example, you may be eligible for a deferment that would allow you to pause payments temporarily. Or you may consider consolidation for federal loans to streamline monthly payments.

Switching from a standard repayment plan to an income-driven repayment plan could also help if your income hasn't recovered to pre-coronavirus levels. An income-driven plan won't reduce your student loan interest rate but it can make monthly payments more affordable. Talking to your loan servicer can help you explore all the available options.