Student Loan Forbearance During Coronavirus – The CARES Act

April 3, 2020
Laura E. McGarry

On March 27, 2020, the president signed the CARES (Coronavirus Aid, Relief, and Economic Security) Act into law. One of the key provisions of the Act provides substantial relief for federal student loan borrowers.

The U.S. Department of Education has put together a guide to help students, borrowers, and parents navigate the Coronavirus forbearance process. The guide will continue to be updated as more information becomes available.

Federal Student Loan Payments Stopped

Under the CARES Act, federal student loan payments will automatically stop from March 13, 2020, through September 30, 2020.  Note: This does not apply to private loans.  If you have a question as to whether your loans are federal or private, contact your loan servicer.

During this time, auto-debit payments will be suspended. In some cases, loan servicers have accepted payments made after March 13, 2020. Any payments processed between March 13, 2020 and September 30, 2020, can be refunded by calling the loan servicer.

Interest Rates Set to 0%

In addition to stopping student loan payments, the CARES Act calls for interest rates on federal student loans to automatically be set to 0% from March 13, 2020, through September 30, 2020 on federal loans owned by the U.S. Department of Education.

Loans that are not federal loans or loans that are administered by federal lenders or the institution the student attended are not eligible. Some non-qualifying loans may be consolidated into a Direct Consolidation Loan, which are eligible for forbearance. However, there are risk to consolidation including capitalization of outstanding interest and an increased interest rate after September 30, 2020.

Additional Borrower Provisions of the CARES Act

Borrowers who are able to continue making loan payments during the Coronavirus forbearances period may do so. Any such payments will be first applied to any outstanding interest that accrued prior to March 13, 2020 and then to the principal balance.

For the most part, suspended payments during the Coronavirus forbearance period will count towards income-drive repayment forgiveness, Public Service Loan Forgiveness, and rehabilitation on defaulted loans.

You can opt-out of the administrative forbearance by calling the loan servicer or manually making payments full or partial payments.

For those with defaulted loans, the CARES Act prohibits the withholding of federal tax refunds, Social Security payments, and wages. Any withholding taken AFTER March 13, 2020 will be refunded.

Under the CARES Act, loan servicers are required to contact borrowers by the end of August 2020 to remind them to start making payments again starting on September 30, 2020.

Current Students

Many students currently in school who are using federal aid to pay their tuition are able to continue their education online. In that situation, most institutions are requiring the payment of full tuition. Some institutions have agreed to refund a portion of room and board payments. Because many students use loans to cover these expenses, it is important to contact the institution regarding any refunds.

For students who rely on a Federal Work-Study job, some schools are making arrangements to allow students to be paid for the hours they would normally work or allow the student/employee to work remotely.

In nearly all cases, federal student loans are based on the student’s parents’ income. In situations where parents’ incomes have been reduced due to Coronavirus, students are encouraged to contact their school’s financial aid office to discuss additional student aid.

Laura McGarry is an attorney at Russell, Krafft and Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Penn State Law and provides legal counsel to individuals and businesses in Lancaster and surrounding communities.