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Coronavirus Student Loan Relief

April 16, 2020
JFDI Accountants

Coronavirus Student Loan Relief

The federal government is providing sweeping relief to most federal student loan borrowers. The CARES Act provided a number of breaks for student loan borrowers, who collectively now owe $1.6 trillion in federally-guaranteed student loans.
Payments are halted through September 30th, 2020, and interest rates have temporarily been set to zero through the same period. See below for details.

It’s important to note that these provisions apply only to federally-guaranteed student loans offered under the auspices of the U.S. Department of Education. They do not apply to private student loans, loans still owned by educational institutions directly, and U.S. Department of Health Loans.

Automatic Forbearance Through September 2020

First, the Department of Education announced that automated payments for the vast majority of federally-guaranteed student loans ceased as of March 13th, 2020. All federal student loan borrowers are automatically placed in administrative forbearance. No payments are required until October 2020, according to the Department of Education.

Wage garnishments for delinquent borrowers are suspended as well.

Auto-Debit Payment Refunds Available

If your loan servicer inadvertently processes any auto-debit payments on federal student loans covered by this policy between March 13th and September 30th, 2020, they will refund them to you upon request. Contact your loan servicer directly to make the request.

Federal Student Loan Interest Temporarily Set to Zero

You can continue to make payments if you choose, but there’s not much reason to do so: Under Section 3513 of the CARES Act, Interest on most federal student loans is suspended as well through the end of September.

Specifically, the interest rate is being temporarily set at 0% for these loan programs:

  • Direct Loans
  • FFEL Program Loans
  • Federal Perkins Loans

Not All Loans Covered

Some Perkins and FFEL loans are still owned by the educational institutions, not the federal government. Those loans are not included in either the CARES Act’s provisions, the zero-interest provision or the Department of Education’s moratorium on auto-debit payments.
In most cases they are able to work with you if your income was disrupted by the coronavirus. Contact the educational institution that holds your loan for more information.

Find Your Servicer

To verify that your loan is eligible for these benefits, contact your loan servicer online or by phone. If you don’t know who services your loan, visit StudentAid.gov/login or call 1-800-4-FED-AID (1-800-433-3243).  

If you are hearing impaired, call 1-800-730-8913 for the TTY line.

Public Service Loan Forgiveness Program Considerations

If you’re enrolled in the Public Service Loan Forgiveness Program (PSLF), you will still receive credit for the time spent in administrative forbearance, just as if you were actively repaying the loan on time. However, you must remain employed full time with a qualifying government or non-profit employer to keep making progress.

Income-Driven Repayment (IDR) Plans

If you are enrolled in an income-driven repayment plan, such as PAYE, REPAYE or IBR, you will still continue to make progress even while your loan is in administrative forbearance. You will not be penalized or lose eligibility for eventual IDR forgiveness just because your payments are in deferral.

If your income remains reduced in October, contact your servicer for more options.

Loan Rehabilitation

If you have a loan in rehabilitation, you will not be penalized if you stop paying between March 13th and September 30th, 2020. You will get credit for your nine months of payments required to rehabilitate a federal student loan just as if you had been making your rehab payments as originally scheduled.

Tax Benefits for Employers

Thanks to the CARE Act, employers may now temporarily deduct payments made to employees in the form of student loan repayment assistance. The measure expires in 2021. Student loan reform advocates have long advocated bringing employer student loan repayment contributions on an equal tax footing with tuition assistance benefits and 401(k) matching contributions, both of which are generally tax deductible to the employers — and non-taxable to the employee, as well.

The student loan repayment assistance deduction is limited to $5,250 per year per employee — the same cap as tuition assistance benefits have had for years.

Although the measure expires next year, this benefit may prove quite popular in an election year. Congress could extend the tax deductibility of employer student loan repayment assistance in the future.