Your monthly student loan payments might be suspended, thanks to the CARES Act
About one-third of adults under the age of 30 have student loan debt, according to Pew Research. That means that even right now, millions of people make monthly payments to their borrowers in an effort to pay down those loans (and the accruing interest). But with everything going on in the economy right now and the spread of coronavirus (COVID-19) still on the rise, those who have become unemployed or are having trouble paying their bills likely won’t be able to make those monthly payments.
That’s why the government included provisions that apply to student loans in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Signed into action late last week, the bill details more than just a $1,200 stimulus check for many Americans, but a way to alleviate some of the stress of monthly student loan payments. Here’s what those provisions mean for you.
Will my student loan payments be suspended?
If your student loans are Direct Loans or Federal Family Education Loans —meaning they are loans that are currently owned by the U.S. Department of Education, and not privately held—then yes, they are covered by the bill and therefore will be suspended.
While previously, President Trump announced that you could stop the payment of your federal student loans for 60 days and take advantage of student loan forbearance (where payments are postponed or reduced, but interest continues to accrue) by contacting your student loan servicer, the new legislation extends these benefits and makes them automatic.
Now, your borrower will automatically suspend all payments for a full six months. This means through September 30, 2020, any borrower that has federal loans has automatically opted in to this, and your auto payments will not be withdrawn from your account. Remember that loan suspension is different than loan forgiveness. Unlike forgiveness, which means that you are no longer required to repay some or all of your loans, at the end of the six month suspension period, your payments will resume.
“For people [who] are experiencing financial hardship due to the national emergency, this is a great thing,” says Michael Bloch, CEO and founder of the personal finance app Pillar, which helps people manage their student loan debt.
“Pausing payments usually ends up costing more in the long-run, but right now, that’s not the case. Given the 0% interest environment, it’s the right thing to do if people are having trouble making ends meet.”
Does the CARES Act waive student loan interest as well?
Yes. According to the bill, no interest will accrue while the loan payments are suspended. In addition to your borrower automatically suspending payments, it will also automatically set your interest rate to 0%.
Will the loan suspension affects my credit score?
Usually, falling behind on your student loans or forgetting to make necessary payments can result in a ding to your credit score. The good news about the stimulus bill is that, according to its provisions, any payment that has been suspended will be treated as if the borrower made a regularly scheduled payment. So for credit reporting purposes, your score will not be affected.
Because of this, personal finance expert at NerdWallet Kelsey Sheehy, says this temporary pause on student loan payments might be a good opportunity to pay down high-interest credit card debt and help out your credit score, if you have the means to do so.
If I can pay my student loan bill, should I?
“For people [who] still have the ability to make payments towards their loans, they should,” advises Bloch. “Zero percent interest on your loans means any extra payments you make will go further towards chipping away at the principal and getting you out of debt faster.”
How do I know if my loans qualify for the suspension?
The Act requires the Secretary of Education to notify the borrowers for whose payments have been suspended and interest waived, or those for whom involuntary collection has ceased, within 15 days of these changes. The notification will also inform borrowers of the option to continue making payments toward the principal.
As information about the coronavirus pandemic rapidly changes, HelloGiggles is committed to providing accurate and helpful coverage to our readers. As such, some of the information in this story may have changed after publication. For the latest on COVID-19, we encourage you to use online resources from CDC, WHO, and local public health departments, and visit our coronavirus hub.