On Friday, President Trump signed the $2 Trillion COVID-19 stimulus package named the Coronavirus Aid, Relief, and Economic Security (CARES Act). The CARES Act provides some definite benefits if you have Federally held student loans. We wrote this article to help doctors with student loans understand and take advantage of the CARES Act benefits.
What does the CARES Act provide for student loans?
The CARES Act ONLY assists with Direct Federal student loans. These are the same loans that are eligible for PSLF and a myriad of other federal benefits. If your loan doesn’t say “Direct” in the name of the loan, it is not affected by the CARES Act.
For Direct Federal Student Loans, The CARES ACT provides:
- A 6-month payment and interest pause that starts in April and continues through September 30th, 2020.
- No interest will accrue on your loans during the six months.
- You do not need to do anything for your repayments to go to zero dollars.
- The zero dollar repayments count toward your PSLF or 20/25-year loan forgiveness programs.
- There are specific benefits for people who are behind on their loan payments. This article has more information.
- Employer payments toward your student loans will not be taxable to you, up to $5,250.
What should you do about your student loan repayments?
If you are pursuing PSLF
If you are seeking PSLF, this is fantastic news! Starting in April, FedLoan Servicing will automatically stop taking your monthly student loan repayments. Since these zero dollar payments count toward your 120 PSLF repayments, there is no reason for you not to take full advantage of this program.
You should not need to do anything for the repayments to stop. To be safe, you should log in to your FedLoan Servicing account and make sure the payments are set for zero dollars and that there is no interest accruing.
If you are pursuing 20/25-Year Loan Forgiveness
If you are seeking 20/25-year loan forgiveness, you should take full advantage of this program. The six zero dollar repayments will count toward your 20 or 25-year loan forgiveness.
Your repayments are supposed to be stopped automatically by your servicer. Since these are the same servicers, with their mistake-prone history, you should log in to your student loan servicer account, and make sure the payments are set for zero dollars and that there is no interest accruing.
If you are paying off your student loans
Unless you feel like your job is at risk during this crisis, and therefore having extra cash is necessary, you should continue to make your student loan payments.
The interest rate relief is going to be your best benefit of the CARES Act. If you continue to make the same loan repayments you were making before the CARES Act, you will pay your loans off that much quicker.
What if you have Federal FFEL Loans?
Most FFEL Loans are not included in the CARES Act. There are some exceptions. You can check out this Forbes article for details. You should contact your servicer and check if your loans are eligible.
If you have FFEL Loans, they are not eligible for PSLF. Therefore, you are either paying off your loans, or planning on 20/25 year loan forgiveness, with IBR payments, and should follow the advice above.
If you choose to consolidate your loans into Direct Federal student loans, the CARES Act benefits will be available with your new consolidated Direct loans. Use extreme caution before consolidating your FFEL Loans. Keep in mind that a consolidation loan is a brand new loan and will reset the count toward any long-term loan forgiveness that might be available to you. Proceed with caution.
What if you have private student loans?
The CARES Act does nothing for your private student loans. If you need repayment relief, check with your loan company. Most of the national private student loan companies have started programs for short-term forbearance. Bear in mind; interest continues to accrue while in forbearance. Your debt will only get larger in forbearance. If you can afford to, make the interest only portion of your payment while in forbearance, this will keep your loan from growing while still providing more cash flow.
If you have private student loans along with federal student loans and are working toward PSLF or 20/25 year loan forgiveness, take this opportunity to pay down your private loans. Send the payments that you would have sent for your Federal Direct student loans and send those payments to your private lenders.
Hopefully, this article has been helpful. Bear with us while we digest all of the benefits of the CARES Act. We are looking for ways that will help you take advantage of this program.