Signed into law on March 27, 2020, the recently passed CARES (Coronavirus Aid, Relief, and Economic Security) Act has created many provisions designed to protect and financially stabilize the millions of Americans who will be impacted by the coronavirus. One such provision affects the way student loans are treated and the suspension of payment requirements for a few months of 2020.
Payment Suspension on Federal Student Loans
Good news to all of those with a federal student loan! Under the CARES Act, all required payments on Federal student loans are suspended through September 30, 2020. During the suspension time, no interest will accrue. Additionally, if you are part of a loan forgiveness program, the period from now through September 30th will still count towards your program even if you do not make the payments.It is important to note that while there are no payment requirements, voluntary payments will continue to be accepted. If you have auto-pay set-up for your student loan payments, be sure to contact the loan provider and pause your payments for the next few months. No suspension of scheduled payments will happen automatically.
Suspension on Involuntary Debt Collection
Behind on your student loan payments? If you’ve gotten behind on payments and your wages are being garnished or your tax refund reduced as a result, those actions will stop through September 30th. If you have not yet filed your 2019 return, it may be wise to consider doing so as it is likely you will receive your refund in full, even if you are currently behind on loan payments, under this provision.
Under normal circumstances, employers can contribute up to $5,250 per year for current education expenses for employees without creating a tax impact. Part of the CARES Act expands the Education Assistance program to include, temporarily, student loan payment assistance. It isn’t uncommon for employers to offer programs that assist employees with paying down their student loan debt. Typically, any funds received by the employee for the purpose of paying off student loans are added into wages on the tax return. A section of the CARES Act gives employers through the end of the year to provide employees with up to $5,250 for paying off student loans tax free (i.e. it will not be added back into wages). Keep in mind that the total education assistance (both current expenses and student loan debt) allowable without increasing taxable wages is capped at $5,250 for 2020.
A Pell Grant is a subsidy to pay for college provided by U.S. government to students who have demonstrated a financial need. If you are currently a student receiving the Pell Grant, the CARES Act allows you to withdraw from school in the middle of the semester (or equivalent) because of a qualifying emergency without the need to return that amount of the Pell Grant. Similarly, students receiving any Direct loan would have the amount for that semester cancelled if they withdraw for a qualifying medical reason.
If you have questions specific to your loans, we recommend contacting your loan provider for additional information and/or instructions.