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What the CARES Act means for your student loans

Michael Bloch

April 15, 2020

On March 27th, 2020, President Trump signed the CARES Act into law. This law, among other things, provides broad relief for federal student loan borrowers. Here are the main provisions of the bill and what these changes mean for federal student loan borrowers in repayment.

Note: For the latest information, please refer to the Federal Student Aid website.

  1. No payments are due on federally held student loans from March 13 to Sept 30. Debits will be suspended automatically by your loan servicer. You can request to have any payments made after March 13th refunded. Lastly, you can choose to still make payments during this period if you'd like to.
  2. Interest will not accrue on federal student loans through Sept 30. Your loans will have a zero percent interest rate through the end of Sept. As usual, if you decide to make any payments during this time period, your payments will first be applied to outstanding fees, then interest, then principal. This does not apply to FFEL loans or Perkins loans held by commercial lenders.
  3. Income-Driven Repayment plan recertification deadline will be extended. For borrowers currently enrolled in an income-driven repayment plan that have their annual recertification date before September, their deadline will be automatically extended.
  4. Suspended payments will still count towards forgiveness programs. For borrowers on programs like income-driven repayment forgiveness and Public Service Loan Forgiveness, you can stop making payments and these months will still count towards the required number of payments for forgiveness.
  5. Payments will be reported to credit agencies as on-time monthly payments. This is different from normal forbearance, and is beneficial to borrowers' credit scores.
  6. Involuntary collection and wage garnishment on defaulted loans are paused as of March 13. You should receive a refund if your wages were garnished after that date. Suspended payments will also count towards your rehabilitation payments.
  7. Your servicer will notify you when payments resume. These communications should start no later than Aug 1, and you will be notified at least six times via phone, mail, or email with the details of when and how your payments will restart.

Here's our advice:

If you're experiencing financial hardship, take advantage of this moratorium on student loan payments to increase your savings or pay off other debts. If your income has changed, we'd also encourage you to consider switching to an income-driven repayment plan, which might enable you to lock in $0 payments for the next year.

If your income hasn't been affected, it might be a good idea to continue making payments. Interest won't accrue on your loans until Oct 1, so any payments you make will be applied directly to the loan principal and will go even further towards paying off your debt. We'd only recommend that people that meet the following criteria do this:

  • Have at least 3-6 months of savings set aside to cover regular monthly expenses in case of unexpected job loss
  • No higher interest debt like credit card debt to pay off first

If you have any questions or need advice on what to do, please email our team at support@pillar.app. We're here to help and are ready to respond to any questions about your student loan payments.

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