The CARES Act: Congress’ Economic Rescue Package and How It Impacts You
This article contains breaking news and events related to the current state of politics and the economy. While we try our best to keep our articles as up-to-date as possible, the ongoing effects of COVID-19 are happening in real time and information is subject to change.
We know many people are nervous about their personal finances and about what the future may hold as our economy and health care systems are stressed by the COVID-19 epidemic.
Our members are ambitious people with ambitious goals—that’s why many of you have student loans so you can further your education. Of the many financial concerns people have right now, paying off student loan debt shouldn’t be one of them.
On March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—a $2 trillion economic rescue package to help businesses and individuals as many face serious financial strain during the COVID-19 crisis. Fortunately, this package includes important provisions that will impact federal student loan borrowers.
We want to make sure you understand the details so you can get the support you need if this bill applies to you. Please note that federal student loans are different from private student loans like those from SoFi.
Here’s a recent blog post that goes over some of the broader highlights of the CARES Act.
Here are some details about how the CARES Act impacts federal student loans:
Simply, the bill temporarily suspends most federal student loan payments without interest for six months. It also halts all involuntary collections of defaulted student loans, including wage and tax refund garnishments. Specifically, it:
• Stops payments on most federal student loans for six months—through September 30, 2020. It specifically applies to Direct Loans and FFEL Loans held by the federal government, regardless of loan status.
• Halts interest on loan payments during this period.
• Suspends involuntary collections and negative credit reporting during this time.
• Enables borrowers to still make payments on their loans if they choose to. Payments will be applied 100% to principal.
How does this suspension impact borrowers on loan forgiveness plans?
• This suspension of payment will not impact those loans. The Education Department will consider this period as if the borrower had made qualifying monthly payments.
Does it apply to all federal loans?
• The suspension of payments applies to most federal student loans. But these benefits do not apply to two types of federal student loans: older FFEL loans held by commercial lenders and campus-based Perkins loans. These loans make up almost 12 percent of the federal student loan portfolio.
President Trump and the Department of Education originally announced that borrowers would be able to defer their student loan payments for at least 60 days, but this bill goes further. Which is correct?
• This bill supersedes the announcements from the administration and expands all those provisions for borrowers.
Are there any other benefits for student loan borrowers in the bill?
• The bill also enables employers to contribute up to $5,250—tax free—to employees’ student loans for one year. All of that money will be able to help you pay down your student loan debt. SoFi has been advocating for Congress to pass this provision for some time and are excited it will be available for this year. We are also eager to see it become a permanent benefit available to you for years to come.
What happens on October 1 when the suspension ends?
It’s unclear what happens at that point. The suspension of payments could end, or it could be extended by the administration or Congress. If it is extended and federal student loans are re-amortized, monthly payments could go up quite a bit. We expect more guidance from the Department of Education and will pass along details when we have them.
This bill was the third package of legislation Congress passed to help address the massive health care and economic challenges from COVID-19. But it likely won’t be the last. It’s expected that Congress will need to come up with at least one more rescue or stimulus package in the next month or so. Once we learn more about what are in the future bills, we will publish those details.
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