While the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed nearly two months ago, it’s likely many Americans will take advantage of its provisions as the coronavirus pandemic’s economic fallout continues — one of which is student loan relief.
The latest Department of Labor statistics indicate unemployment numbers continue to rise, with over 36 million filing for benefits as of last Thursday. As more and more individuals lose their jobs — and likely turn to savings to sustain themselves during the search for a new position — it will become increasingly necessary for Americans to trim their budgets and employ cost-saving measures.
And with over 46 million people in the United States currently holding student loan debt, according to a study by the Center for American Progress, it’s possible many of the individuals affected by COVID-19 will turn to the CARES Act’s specific guarantees that allow them to delay loan payment well into the fall.
That being said, individuals who are considering taking advantage of the new law should ensure their money is being spent efficiently during this period.
What Does the CARES Act Mean for Your Student Loans?
The CARES Act gives individuals with federal student loans the option to delay loan payment until September 30, 2020.
The legislation, passed in mid-March, automatically placed all federal loans on administrative forbearance.
Better yet, these six months of delayed payments still count toward many income-driven repayment plans, in essence accelerating their repayment period six months.
“This stimulus plan allows borrowers working toward forgiveness programs such as Public Service Loan Forgiveness and income-driven forgiveness plans such as PAYE and REPAYE to have six months of suspended payments still count toward their loan forgiveness,” said certified financial analyst Travis Hornsby.
Moreover, the legislation also sets a zero percent interest period, also until September 30, preventing the further accumulation of additional interest throughout the pandemic.
What Should You Do With Your Loans?
During this period, you have the option to continue paying off your student loans, if you so choose. All payments made from now until October 1 will be applied to your principal once you've paid all outstanding interest.
Those with student debt (and stable employment) might be inclined to take advantage of this period and make interest-free payments toward their debt.
However, such a decision might be short-sighted — especially once you consider that more layoffs are possible in the near future and economic recovery could be sluggish.
“Many experts are suggesting that borrowers use the zero percent interest period as an opportunity to knock down their balance by continuing to make payments,” says attorney and student loan relief advocate Michael Lux.
“This approach may be a mistake if a borrower ends up losing their job during the pandemic,” Lux adds. “Such an individual might appreciate having extra money in a bank account rather than a slightly lower student loan balance during this period.”
Depending on your job security, how much debt you have remaining, and what your repayment schedule looks like, it may be better to put the amount that would go toward your student loans into a high-yield savings account or money market account.
Additionally, individuals with private student loans should not assume their loans have also entered into administrative forbearance during this period. If you have private loans, double-check their status on the Federal Student Aid website.
“Some private loans have special provisions for those affected by a National Emergency, which COVID-19 is,” Lux says. “Other lenders are making special exceptions, but there has been no uniform response.”
Is There Any Other Help?
Those concerned about their credit score being negatively affected during this period — given that not paying back your loans might feel like delinquency — need not worry.
“There shouldn’t be any adverse credit effects from not making payments during the interest rate freeze,” Lux adds.
Better yet, it’s possible that more help is yet to come. The House of Representatives recently passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act to help provide further coronavirus relief, which would guarantee $10,000 in student loan forgiveness.
Given the bill’s current opposition in the Senate, however, additional student loan relief might be hard to find during the coronavirus pandemic. That said, you can follow CentSai’s COVID-19 page for the latest news and tips on how to manage throughout the pandemic.