How the CARES Act Affects Your Student Loan
Recent legislation passed as a result of the COVID-19 pandemic has already had a profound effect on millions of people who have student loans. That’s because the new series of laws, collectively called the CARES Act, deal directly with how long borrowers have to repay loans, how they can delay repayment, and more. If you currently have education debt, the CARES Act will almost certainly have a positive effect on your financial situation. For a complete text of the legislation, check out the official U.S. government document at the federal resource repository. Here’s a look at the main components of the new rules.
Interest on Student Loans
As of March 13, and continuing until the federal government decides to end the provision, borrowers don’t have to pay interest on their federal education loans. Even better, you have at least until September 30th to defer your entire payment. Note that the waiving of interest means you won’t ever have to pay the interest, but the deferment of the entire principal means you will, someday, have to pay back the deferred amount. Depending how large your loan is, this provision could save you a decent amount. It was written into the law in order to give people breathing room with their education debt, forgive at least several months of interest, and allow for about six months of deferred principal payments.
Loan Forgiveness
Borrowers who make 120 full payments are able to apply for a forgiveness program. That program is still in effect. The key point is that even if you opt to defer six payments, those six months will still count toward the total 120 months if you apply for the forgiveness program anytime in the future.
What Kinds of Student Debt Does the New Law Cover
Even though politicians are already talking about adding on to the COVID-inspired legislation, it’s important to note that the current act only covers federal debt, not private borrowing. Fortunately, the majority of education borrowing is federally backed, so most people with financial obligations will be able to benefit from the provisions of the CARES Act.
What’s the Best Strategy
If you can handle the financial demands of making regular payments on your education debt, it’s probably best to do so. That means not deferring any of the principal payments. You’ll still be forgiven the interest for six months, regardless of what you do. The upside to staying current with regular obligations is because there’s no interest being charged for six months, you’ll be able to pay the principal down by a significant amount during the half-year period. Then, assuming life returns to normal at the end of September, you’ll be looking at a much lower financial obligation.
When Will New Laws Pass
If you’re wondering about additional legislation that might offer even more ways to handle your outstanding balance, look for a fresh series of rules sometime before the end of May. Many members of Congress have indicated that any extra provisions should be worked out by that time and quickly passed by both the House and Senate.