Student Loans Under the CARES Act: Your Questions Answered

Guest Contributor

If you have more questions than answers when it comes to the CARES Act and how it will affect your child’s student loans, know that you are not alone.

This is an unprecedented time for our country and the rest of the world, and the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress and signed into law by President Trump in late March, is an unprecedented bill.

As many of us continue to live in lockdown and aim to mitigate our fears of this frightening pandemic, I imagine student loans are further down your list of worries. But in this article, I hope to ease some of those worries, and hopefully answer many of your questions in the process.

First, let’s talk about what the CARES Act does for student loan borrowers and who it helps.

If you have federally held student loans, which include Stafford subsidized loans for your children or Parent PLUS loans for you, student loan interest and payments are paused until September 30, 2020. Meaning, if you have these federal student loans you do not have to worry about making payments until after September 30.

If you made a payment on a federal student loan after March 13, you should call your student loan servicer and request a refund because any payments made during that time count towards loan forbearance programs.

For those who have federal student loans and are wondering what your next step should be, the answer is nothing! If you’re set up for automatic payments, your payments will automatically stop with no action needed from you. If your payments do not automatically stop however, there is a good chance your loan is not covered by the CARES Act.

Unfortunately, this bill does absolutely nothing for borrowers with private student loans, FFEL loans held by a commercial lender, or the Department of Health student loans.

The government stopped issuing FFELP loans in 2010, so anyone who graduated or went to school before that time likely has this kind of student loan and does not qualify. I’m willing to guess that makes up many of the parents reading this article right now. In fact, based on data from the Department of Education, there are an estimated 6 million student loan borrowers with federal loans “owned by a commercial lender” who will not receive any help with their student loans at all, despite having used a federal borrowing program.

For those who fall into the “do not qualify” camp, let’s talk about your options.

1. If you have loans through the FFEL program or the Department of Health, you can convert them to loans that qualify by consolidating them into Federal Direct student loans.
2. If you have private loans, most lenders right now will allow you to pause payments for up to three months. You can also still refinance private student loans to a lower rate or a lower payment during this difficult time. The reason you want to do this is because it’s the only way right now to lower your interest rate on private student loans, and to potentially also lower your payment.

If you’re in a situation where your loans do not qualify for the CARES Act 6-month pause and you cannot pay your loans right now, call your lender and ask for forbearance options. They will likely say yes. If they don’t say yes, there may be penalties and interest added, but know that they won’t destroy your finances, as millions of Americans are behind on their bills right now. Many state senators are specifically requesting these instances not be reported to credit bureaus.

Also, any judgments against you for private student loans will take a long time to process, so you can probably get it corrected before you get in any big financial trouble.

For those with federal student loans who do qualify for the CARES Act 6-month pause, there are two things to keep in mind.

The first piece of advice I would suggest is you should eventually look at refinancing your federal student loans, but you need to wait until after the freeze ends on September 30 to get an attractive rate that makes sense to refinance them.

Secondly, since you do not need to worry about payments right now, use this time wisely. If you’re fortunate enough that your income has not changed, take advantage of an opportunity to pad your emergency savings fund. Remember, even if you don’t have to make payments, student loans will still be there after the six-month payment and interest freeze is over. It’s best to be prepared for when that time comes.

Suspending payments for six months is a great victory for federal student loan borrowers, as is suspending all interest. Obviously, we wish more borrowers had been included in the relief package. However, no matter what your situation is, I hope this article puts your mind at ease in knowing there are options available.

Let’s hope and pray we come out the other side of this sooner rather than later.

About The Author

Travis Hornsby, CFA, is Founder and CEO of Student Loan Planner. He lives with his wife in St. Louis, MO, where he loves thinking up new student loan repayment strategies and frequenting the best free zoo in America. As one of the nation's leading student loan experts, he has consulted on $500 million of student debt personally.

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