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This article will discuss the CARES Act's current state and how it impacts student loan debt, and the potential for loan forgiveness. We will answer the following questions:
- What is the CARES Act?
- Which student loans are affected by the CARES Act?
- What if the Department of Education does not own my loans?
- What about income-based repayment plans and Public Service Loan Forgiveness?
- Will the Biden administration push for student loan forgiveness?
The pressure of student loan debt isn't limited to new grads. Americans fifty and older make up roughly twenty percent of those paying down student loans. The number of people sixty and older with student loan debt has grown faster than any other age group. Many who owe student loan debt acquired it as a consignor or by taking out loans to pay for their children and grandchildren's education. The CARES Act has given breathing room to many struggling to pay for baseline living expenses such as rent, mortgage, food, and utilities. Keeping spirits high is the Biden administration's indication that student loan forgiveness may be closer than most think.
What is the CARES Act?
Originally signed into law on March 27, 2020, the CARES Act provided sweeping stimulus relief by putting cash into the hands of struggling Americans, paying out interest-free forgivable loans to businesses, prohibiting evictions and foreclosures, and halting student loan payments and interest. Since its inception, the CARES Act has been extended, and federal student loan holders' protection now lasts through September 2021. Those holding private student loans and federal student loans not owned by the Education Department won't benefit directly from the CARES Act, but they should still try to work with their lender to avoid defaulting.
The zero percent interest rate and suspension of payments provided by the CARES Act started automatically back in March of 2020 and is presently in force. If you have eligible loans, no action was needed on your part to take advantage of the CARES Act. Those who made a payment after March 13 can contact their loan servicer for a refund.
Which Student Loans are Affected By The Cares Act?
At this point, you should be able to look at your loan statements and know if the zero interest and payment hold took place. It's possible that if you have auto-pay, payments have continued through the CARES Act. Again, if you made payments after March 13 on a CARES Act eligible student loan, you can seek a refund. Loans covered under the CARES Act include:
- Certain Federal Perkins Loans;
- Direct Federal Loans (defaulted and nondefaulted);
- Certain Federal Family Education Loans (defaulted and nondefaulted);
- Certain Stafford loans as part of FFEL loans;
- Direct Consolidation loans owned by the Education Department; and
- PLUS loans
If you're not sure if your loan is eligible, reach out to your loan servicer.
What If the Department of Education Does Not Own My Loans?
If the Education Department does not own your loans, you have a couple options: (1) ask your loan servicer about lowering your interest rate or placing a hold on your payments through a forbearance. (2) You can consolidate some education loans owned by your school into a Direction Consolidation Loan; this type of loan consolidation would make the loan held by the Education Department. However, reconsolidating into a Direct Consolidation loan may increase your interest rate and balance and resets the clock for loan forgiveness. Make sure to complete your due diligence if you're considering reconsolidating to be eligible for the CARES Act.
What About Income-Based Repayment Plans and Public Service Loan Forgiveness?
The CARES Act automatic forbearance should have no negative impact on your eligibility for income-driven repayment plans (IDR) and Public Service Loan Forgiveness (PSLF). If the Department of Education owns the loan, it is covered by the CARES Act and continues as if nothing happened, even though no interest builds and you're not making payments. For PSLF participants, you must have a Direct loan and continue to work for a qualifying employer throughout the forbearance period. Also, borrowers in default shouldn't see their wages, benefits, and tax refund garnished until after September 30, 2021.
Will The Biden Administration Push For Student Loan Forgiveness?
No one can predict the future, but the Biden administration has shown interest in forgiving $10,000 or more of federally-backed student loan debt. There's no timetable for a loan forgiveness initiative, so counting on having your student loans forgiven in the near future may be a poor gamble. If you're able, continuing to pay down your student loan debt while the CARES Act is in force is an excellent option as your entire payment will go to the principal. If you have any questions about student debt, debt management, or bankruptcy, please give us a call.