Student Loans and the CARES Act: Here's How Coronavirus Relief Will Actually Work

This article was updated April 6 to share new information.

In the span of two weeks, the government's coronavirus assistance for student loans escalated quickly: first, it was waiving interest on some student loans, then suspending payments for two months, and then, most recently, stopping payments for six months.

Nearly one in every five American adults carries student debt, and they owe an average monthly payment of almost $400. There are several types of federal student loans and even more repayment plans, which form a maze of complications any time new policies are put in place. Loan servicers are still working to update their systems to reflect these fast-changing policies.

So you'd be forgiven for feeling a bit unsure about what the latest news means for you. Does it apply to you? Do you need to do something? Will it interrupt your progress toward loan forgiveness? The U.S. Education Department put out guidance on those questions and more on Thursday.

Here's what you need to know:

Which loans qualify?

Most federal student loans are eligible for relief. The covered loans include Direct Stafford loans (subsidized and unsubsidized), Direct Plus loans for parents and graduate students, and Direct Consolidation loans.

Also included are some Federal Family Education Loans and Perkins loans, but the key is they must be held by the federal government to qualify. And most of those loans are not held by the government. (Read more about that here.) Depending on your servicer, it may be easy to look up whether your loans qualify online. Navient, for example, says its clients can find this information under "account summary" and "loan details." If the current owner says "ED," you're all set.

Private loans and loans issued by state lending authorities do not qualify.

When does it start and how long does it last?

The Education Department has said that servicers will have until April 10 to get the benefit up and running. But it will be applied retroactively to March 13, the day President Donald Trump announced he’d be setting interest rates to 0%.

It lasts until September 30.

What do I need to do?

If you have a qualifying loan, nothing. The Education Department and loan servicers are supposed to automatically set interest rates to 0% and stop payments until the end of September. You’re also supposed to get a notice from your servicer in August reminding you that payments will resume.

What if I use auto-debit for my payments? Do I need to do something?

Nope. Your auto-debit will also be automatically stopped.

You said this began March 13, but my regular monthly payment still came out of my account after that. What’s going on?

Right, this was a massive task for servicers to put in place—especially when many are dealing with the same work-from-home orders affecting much of the country. So it’s taking some time for the systems to catch up to Congress's order.

But the time period while the servicers are working to update your account is still eligible for the 0% interest and deferred payment. If you made a payment to your account in that window, check your statements to confirm that you were not charged interest for the full month of March. And If you’re short on cash right now, the Education Department says you can ask for a refund for that payment. Again, that only applies to payments made between March 13 and April 10. You'll need to call your servicer to request a refund. Wait until after April 10, which is when the accounts are supposed to be updated.

How can I check to make sure my servicer is doing this right?

This is something every borrower should do. Why? It's complicated for the servicers to administer, particularly on short notice, says Michele Streeter, a policy analyst at The Institute for College Access and Success. And with the Public Service Loan Forgiveness program, another benefit that's been complicated to run, there are numerous examples of servicers miscounting payments or giving borrowers incorrect information.

So you need to advocate for yourself. Log into your account on your servicer's website (after April 10) to check that the interest rate is set to 0% and that you don't have a payment due until October. If you don’t know who your servicer is, you can find that out from the Federal Student Aid Information Center.

Will my monthly payments over this 6-month period be forgiven?

No. There was a proposal from some Democrats that would have included some loan forgiveness, but the final law does not have that. Think of it like this: Whatever amount you owed on March 13th, that's how much you'll owe starting October 1, when the interest-free, suspended payment period ends, unless you proactively continue making payments.

Should I keep paying my loans over these 6 months?

If you’re still employed and comfortably meeting all your other bills, it makes sense to keep paying. All of the money will go toward your principal (after covering any unpaid interest you may have), which will mean you’ll pay off the loan quicker and pay less interest over time.

This may seem small—and depending on your debt load, it could be. But if you have loans with higher interest rates from graduate school, an interest-free period can be valuable. Let's say you owe $40,000 in principal, at about 7% interest and you're aiming to pay it off in 10 years. Each month over this six-month period, you would normally owe about $230 in interest, which means you could pay an additional $1,300 toward your principal while taking advantage of 0% interest. Over the life of the loan, that'd reduce the total interest you paid by more than $2,600, according to calculations done by Mark Kantrowitz, publisher of Savingforcollege.com and an expert in financial aid.

That said, federal student loans are some of the most generous and flexible debt around, and we're likely headed into a recession. If you are worried you may lose your job, or you have little in savings to help you survive in the event of a pay cut or job loss, that monthly payment could be better spent elsewhere, like paying down more expensive credit card debt or building up emergency savings.

If you want to keep paying, you can log into your account on your servicer's web site and manually send in a monthly payment, or you can call and ask your servicer to keep you on an auto-payment plan.

Will this affect my credit?

No. The Education Department has directed student loan servicers to report this six-month period, technically called an "administrative forbearance" as regular, on-time payments to the credit reporting agencies.

What can I do if I have an FFEL or Perkins loan that doesn’t qualify?

You have a few different options, including consolidating your loans into the Direct Loan program so they do qualify or placing them in a normal forbearance. There are downsides to both--after consolidation, you lose any credit you've built up toward loan forgiveness, for example, and interest will continue to accrue in a normal forbearance. You can read more about those pros and cons here.

Keep in mind here that you will have to proactively call your servicer and figure out which of these options are best for your situation.

I’m working toward loan forgiveness. What do I need to know?

Good news: This six-month period will count toward your forgiveness. You may have heard or read differently in the past two weeks. But that information is out-dated, because there were essentially two different relief programs going on at one point. One that was initially announced by Trump and the Education Department, and then a broader, more generous one that is going into effect now that Congress has approved it.

Many borrowers in the Public Service Loan Forgiveness program who have reached out to The Institute of Student Loan Advisors in recent days are skeptical about this, says Betsy Mayotte, founder of the institute, which gives free advice to borrowers.

"They're saying, 'this sounds too good to be true,'" she says.

But it is true: it's written in the text of the bill that Trump signed into law. So if you meet the other qualifications for PSLF, meaning that you're enrolled in an income-based repayment plan and you work for a qualifying non-profit organization or public sector job, then these six months will count toward your 120-month total.

For borrowers just aiming for regular forgiveness via income-based repayment, which takes a minimum of 20 years of payments, you will also get credit for this time period.

I've already defaulted on my loans. Does this help me at all?

It does. For one, the Education Department is putting a stop to collecting on defaulted federal student loans, including all types of FFEL loans, until the end of September, and ordering private collection firms to stop pursuing borrowers. That means if you're one of nearly 9 million borrowers whose loans are in default, the government will not take money out of your tax return, paycheck, or Social Security payments during this period.

If your wages are still being garnished, you should call the department's Default Resolution Group. Like with payments made between March 13 and April 10, you can get a refund if the government already took that money. (There are more details available here.)

On the other hand, if you're working to rehabilitate your loans, you just got a "huge gift," Mayotte says. To rehabilitate a loan, which erases a default from your credit report and puts you in good standing, you have to make nine consecutive months of payments. These six months of no payments will count toward your nine months.

I have private loans, is there anything I can do?

This will be on a lender-by-lender basis. But the key is to contact your lender as soon as you know you may have a problem. You'll want to explain that you've been financially affected by the pandemic--whether you or your spouse lost your job or had your pay cut, or you couldn't work because you were sick. But there are no magic words, Mayotte says.

Most private lenders have some form of forbearance. Others may be able to set you on a reduced payment plan. It really depends on who your lender is, Mayotte says.

A spokesperson for Sallie Mae, one of the largest private lenders, said in an email the company will work individually with customers to try to find an alternative arrangement that may reduce monthly payments. Customers having financial difficulties can also request a three-month suspension of payment.

Was your lender helpful? Did they not offer you any flexibility? Let us know at college@money.com.

I have more questions you didn’t answer, where can I get help?

Tell us what you want to know by emailing us at at college@money.com.

In the meantime, the Education Department has a round up of information here. You can also contact The Institute of Student Loan Advisors, which offers borrowers free, personalized advice, has helped start a new page to help borrowers during the coronavirus outbreak. It is: https://www.studentaidpandemic.org/