The $2 trillion stimulus bill -- formally known as the CARES Act -- was recently signed into law. Among its many provisions designed to help the economy weather the COVID-19 pandemic and recession, there are some big implications for student loan borrowers.
The two biggest student loan relief measures include a forbearance on all federal student loans through September and a 0% interest rate for the duration of the pandemic. However, many borrowers understandably have some unanswered questions, so let's see if we can clear some things up.
1. The forbearance is automatic
Here's the answer to the biggest question I've heard from federal student loan borrowers: Your payment obligation will automatically stop from March 13 through September 30. This includes borrowers who are on automatic payment plans.
It could take your loan servicer a little while to get its system updated with all of the provisions of the CARES Act. As of 8 a.m. EDT on April 2, for example, my federal student loan payment is still showing as due on April 5. And to be fair, it takes time to make the necessary modifications for millions of borrowers. But the key point is that you don't need to do anything to get the forbearance.
2. You might be able to get a refund on your March payment
This brings up a natural follow-up question: What happens if you made a student loan payment after March 13 when the forbearance period started? Or what if your servicer auto-debits your April payment before its system is updated to reflect the suspension of payments?
The good news is that any payment you make to your federal student loans during the forbearance period can be refunded. This includes payments made manually and any automatic payments. While servicers are still working out the process, you can request a refund for any payment directly from them (hopefully within the next few weeks).
3. You can still make payments if you want to
Another common question is whether borrowers can continue to make student loan payments during the forbearance period. The answer is yes, and if you can afford to do so, it could certainly be a smart financial decision.
Since federal student loans are currently set to 0% interest, this means that anything you choose to pay will be applied to reducing the principal, which will not only allow you to pay off your loans sooner, but also save you significant money on interest charges over the long run.
4. It only applies to federal student loans
The Department of Education has no legal authority over private lenders, so the CARES Act student loan relief provisions only affect federal student loan borrowers. Unless you've been told otherwise by your lender, any private student loans you have are still due as usual.
Having said that, if you've lost income due to the coronavirus outbreak and you might have trouble paying your private student loans, the best thing you can do is contact your lender right away. The good news is that while the 0% interest or automatic forbearance doesn't apply to private loans, most lenders are willing to help affected borrowers by allowing the temporary suspension of payments or through other relief measures.
5. When does the 0% interest period run?
The 0% interest period applies for the same dates as the forbearance -- from March 13 through September 30.
However, it's worth noting that the CARES Act wasn't signed into law until March 27, so your loan may still have accumulated interest for the early part of the forbearance period. This will be changed retroactively by your lender if it hasn't been already.
6. How much will this relief save you?
It depends on your loan balance and your normal interest rate. A borrower with $50,000 in federal student loans at an average interest rate of 6% will save roughly $250 per month for the duration of the forbearance.
7. Not all federal student loans are eligible
The forbearance and 0% interest rate apply to most federal loans, including Direct Loans, FFEL Program Loans, and Federal Perkins loans. It even applies to loans in default.
However, it's worth noting that some FFEL Program loans and Perkins Loans aren't owned by the federal government. For example, some Perkins Loans are owned by the schools the borrower attended. However, if you have loans of this nature, you can consolidate them into a Direct Consolidation Loan that would be eligible.
New guidance is likely to emerge
As a final point, keep in mind that this is still a very fluid situation. The U.S. Department of Education and the federal loan servicers are all scrambling to keep up with the latest federal guidance, and it's entirely possible for the relief measures to change in the future as the coronavirus pandemic unfolds.
The Federal Student Aid website has set up a coronavirus information page to keep borrowers updated, so if you're a federal student loan borrower, it's a good idea to check it frequently for the most up-to-date information.
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