posted by: Radnor Financial Advisors
The CARES act passed in late March incorporates several conditions to help provide additional flexibility and financial relief to student loan borrowers.
The student loan provisions include accommodations for loans that fall under three general categories benefitting student borrowers: assistance to borrowers themselves, ability for their employers to provide assistance to them, and enhancements and loosening of rules around federal government grants and loans.
First and foremost, required payments on student loans have been suspended until September 30th, 2020, with no interest accrual on the outstanding principal amount of the loan. It is important to note that voluntary payments on loans are still permitted, and by default the payments on student loans will continue unless the borrower opts out of making payments with their loan provider. Borrowers who are on loan forgiveness programs (such as the Public Service Loan Forgiveness program) will also continue to qualify for the loan forgiveness through timely payments (and should strongly consider suspending payments immediately as this could allow for a larger eventual loan forgiveness).
Employers are also able to assist their employees with managing their student loan debt during the crisis. Under the act, employers are permitted to enact payments to aid employees paying down student debt through wages or directly to the loan provider. Employers are able to provide employees with up to $5,250 for student loan debt payments and exclude this amount from the employee taxable income from the date the law was enacted through the end of 2020.
Finally, the government has provided additional assistance through Pell Grants and loan relief offered to students who have been forced to leave school. The CARES act excludes any semester as a period of enrollment that a student doesn’t complete due to a qualifying emergency, allowing the student to extend the ability to receive grant aid. If a student withdraws from school during the middle of a school semester because of a qualifying emergency, the act also eliminates the amount of a student’s Pell Grant that would normally have to be repaid in this scenario and cancels any direct loan taken to pay for the semester.
The CARES Act provides significant opportunities for relief to many federal student loan borrowers affected by the COVID-19 crisis. Student loan borrowers should consider further reviewing any of the above options to see if they are able to qualify for the enhanced benefits offered through the act.
Author: Bryan Blades, CFP®