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How the CARES Act Affects Your Student Loans

UPDATE: As of September 30, 2020, the CARES Act ended. But by executive order, President Joe Biden has extended student loan payment relief three times—most recently through May 1, 2022. Read about it here.

Student loans. Ugh. Just the thought of them probably fills you with dread. And now, as we continue to navigate a global pandemic, you may be wondering how you’re going to keep food on the table, let alone make those student loan payments.

Maybe you’ve heard, but you might not have to pay on your student loans right now because of the coronavirus. But wait a second—don’t start shooting off the confetti cannons just yet.  

If there’s one thing you already knew, it’s that student loans are no joke. And neither is this virus. But you want to make sure you’ve got all the facts and you’re thinking long term before you make any rash financial decisions. Here’s what you need to know about the CARES Act and how it affects you paying off your student loans.

What Is the CARES Act?

As soon as everything began shutting down in an effort to slow the spread of COVID-19, the economy started to take a big hit. So, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (aka the CARES Act) in March 2020 as a way to help keep Americans and businesses afloat as we ride out this pandemic.

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You know that stimulus check that hit your bank account? Yeah, that’s part of the CARES Act. Under the act, the government gave out $2.2 trillion to help ease some of the financial loss due to the coronavirus.1 Most of the money went toward individual American taxpayers, unemployment funds, small business loans, medical equipment for hospitals and local government.  

But there’s more to the CARES Act than just handing out checks—it also comes with some changes in favor of borrowers, specifically those with student loans.

What Does the CARES Act Say About Student Loans?

Believe it or not, there are 42.9 million borrowers who, put together, owe about $1.6 trillion in federal student loan debt.2 Wowza! And those who have recently lost their jobs are too busy trying to pay their mortgages and feed their families to worry about their student loan payments right now.

So, under the CARES Act, payments for federally owned student loans are temporarily suspended until May 1, 2022.

What does that mean? Well, normally, you would have to prove you can’t make payments with your current income in order to get student loan forbearance or deferment. (Forbearance and deferment are just fancy words to describe putting your payments on hold. The difference is that interest continues to grow with forbearance but may or may not with deferment.) But under the CARES Act, all federal student loans have been automatically placed in forbearance.  So, you won’t be charged anything on your student loans until May 2022, not even interest payments—but you’re still able to keep paying on them if you want.

But that’s not all. Under the CARES Act, there’s currently a 0% interest rate for all federal student loans. So, any payments you make toward those loans right now will go straight to the principal (the original amount you borrowed), and your loan won’t grow in interest.

Which loans qualify?

Federal student loans that are owned by the U.S. Department of Education are covered under the CARES Act. This includes Direct Stafford Loans, Direct PLUS Loans for parents and graduate students, and Direct Consolidation Loans. It also covers two other kinds of student loans, but only when they’re not owned by commercial lenders: Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans.

Any private student loans or loans that aren’t federally owned are not covered under the act. So, sorry, but Sallie Mae is still going to expect her monthly payment.

If you’re not sure who owns your student loans, you can check here. If you see ED next to the loan, that means it’s owned by the Education Department and is covered under the CARES Act.

How long will it last?

For now, about 26 months. No payments are required on federal student loans from March 13, 2020 until May 1, 2022. Same goes for the 0% interest. If, for some reason, you were already charged after March 13, 2020, that payment will automatically go toward the principal. And as long as unemployment and the economy stay on track, the May 1st date should stay the same.

Will my payments be forgiven during this time?

No—the government is not paying your student loans for you during this time. It’s just letting you delay the payments. So, if you don’t pay anything toward your student loans until May 2022, you’ll still owe the same amount you owed before the CARES Act took effect.

And if you’re applying for the Public Service Loan Forgiveness (PSLF) Program, this suspension won’t affect your eligibility. But student loan forgiveness isn’t something you should get your hopes up about. You’re better off taking control of your own financial future, instead of waiting on the government to save you.

How Does the CARES Act Affect My Credit?

If you choose to not pay your federal student loans during this time, it won’t affect your credit. Your student loans will still show up on your credit report, but as long as you were in good standing before the CARES Act, this pause won’t hurt your credit score.

And if you had already defaulted on your federal student loans, there’s some good news for you. Right now, student loan collections are on pause. That means the government can’t take money out of your paycheck, tax return or Social Security to make sure you pay. But it’s not exactly a free pass—this is your chance to catch up on those payments if you can and get back on track.

But global crisis or not, avoid getting sucked into worshipping at the altar of the almighty FICO. Instead, focus on taking care of you and your family and getting rid of your debt for good.  

Should I Keep Paying My Student Loans?

Here’s what to do if you’re in a crisis:

If you’re in the middle of a personal crisis (like losing your job, expecting a baby, or having an immediate family member in the hospital), go ahead and pause your debt snowball. Notice we said pause and not stop—you’ll want to pick the momentum back up as soon as things go back to normal.

In the meantime, make sure you cover your Four Walls: food, utilities, shelter and transportation. And stockpile as much cash as possible to help you weather the storm. Remember, this is only for a little while. So, stay calm and stick to the plan!

Here’s what to do if your income is stable:

If you’ve still got a job and think you’ll be able to financially make it through this pandemic, then yes—keep making student loan payments and plowing through the Baby Steps. You may not have to worry about making a minimum payment for the next several months, but the more you throw at your student loans now, the sooner you’ll be out of debt. In fact, now’s a great time to pay as much as you can because it all goes straight to the principal! Waiting until May (when the interest rate kicks back up) will only extend the length of your loan and keep you in debt longer. Plug your payments into the student loan payoff calculator with 0% interest and see how fast you can pay them off right now!

Keep in mind that auto-debit student loan payments are on pause until May. So, if you’ve been relying on automatic withdrawal to pay your federal student loans and you still want to pay them during this time, you’ll have to either manually send in a check or talk to the lender about ways to pay electronically. You’ll need to do this each time you want to pay.

Moral of the story: Don’t stop your debt snowball if you can help it! Even though a lot of things have changed because of this pandemic, you don’t want to lose sight of the big picture—being debt-free!

“The fact that they’ve given you an interest break only accelerates how fast you pay it off. It does not mean you stop paying on them.” — Dave Ramsey

Does 0% interest affect the order of my debt snowball?

Under normal circumstances, we teach people to follow the debt snowball method. That’s when you list all your debts smallest to largest and pay them off in that order—regardless of interest rate. This gives you small wins and helps you tackle your debt with gazelle intensity.

But in this case, which is definitely a rare exception, you have a couple options: You can keep making payments on your federal student loans so the 0% interest works in your favor. Or you can pause those payments and use the extra cash to really hit the smallest debt in your snowball. If you do this, though, don’t forget to put those student loans back in your debt snowball come May.

And what about those private student loans that aren’t covered by the CARES Act? Try talking with your lender to see if there’s any way they can help you during this time, especially if you’ve lost your job. Or see if refinancing your student loans is the best option for you.

Whatever you decide to do, remember to think ahead and not let short-term fear mess up your long-term plan. You got this!

Can You Get a Student Loan Refund Check?

Yes, you can. In an effort to help those in extreme financial strain, the government has directed federal loan servicers to allow borrowers who need extra money to collect a refund on any payments to qualifying student loans they made on or after March 13, 2020.

Would we suggest it? No. Not unless you’re struggling to put food on the table and that refund check will help you feed your family. But if things are relatively normal with your budget right now, you’d be robbing from your future by asking for a refund.

However, as we mentioned above about the possibility of pausing the debt snowball, sometimes really hard times call for unusual measures, and that might be your situation today. If—and only if—it’s crucial for your daily circumstances, here are the simple steps to collect a refund on student loan payments:

  • Make a note of how many payments on eligible student loans you’ve made since March 13, 2020 (nothing from before that date is eligible for a refund).
  • Note the date and amount of each payment as well.
  • Be aware that if you have made payments during the deferment period to more than one student loan servicer, you’ll need to reach out to each one individually for refunds.
  • Each servicer’s website includes a COVID-19 page with their own steps for how to collect that refund. In most cases, this will just mean a phone call to get it done.
  • Now’s the time to specify which months you’d like to have payments refunded for, as well as asking them how long you should expect to wait on the refund.
  • Refunds should go to the same bank account you used for the original payment or payments.

How to Get Rid of Student Loan Debt

It doesn’t take a crisis to make you realize student loan debt is holding you back from the life you want. But if you’re tired of paying for the past, you can get out of debt. Instead of spending the next decade paying for a degree you got years ago, kick it to the curb—now!

You can learn how to pay off your student loans (and any other debts), build your savings, and prepare for your future with a free trial of Ramsey+. With video lessons you can watch from home and awesome tools and resources to help you budget and track your progress, it’s everything you need to start crushing your money goals. Even in the middle of uncertain times, you can make a plan for your money and stick to it.

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About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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