In this series, we will break down the $2 trillion relief bill passed to address the Covid 19 Pandemic. The CARES (Coronavirus Aid, Relief and Economic Security) Act that was signed into law on March 27th seeks to address many parts of the US economy hurt by the Covid 19 pandemic. Today, we will review the suspension of student loan payments provisions in this bill. This affects about 45 million Americans.
Suspension of Student Loans: What you need to know
The CARES Act, allows Americans with federally held student loans to suspend making principal and interest payments on these loans through September 30th. No extra interest will be due. This will provide much needed relief to many younger Americans who hold a total of nearly $1.6 trillion in student loan debt. According to one New York Times report, “any unpaid interest from before the period began will not be added to your loans principal- a process known as capitalization- because of the six- month suspension.” The effect of that is that your federal student loan balance on September 30 should be the same as it was on March 13th.
What types of student loans qualify?
If you have a so-called “Direct” Loan from the Federal Government in the last 10 years, you automatically qualify to have your payments suspended. This includes Defaulted and Non-defaulted Direct Loans, Defaulted and Non-defaulted Federal Family Education Loan Programs (FFELs), and Federal Perkins Loans.
Unfortunately, private loans are not covered by the CARES Act. According to the Institute of College and Success this covers about 90% of student loans. To check if your loan qualifies, we recommend that you visit: https://studentaid.gov/
What happens if I can still pay?
You can choose to keep paying your student loan during this time. For those in a position to do so, we recommend you take advantage of the lack of accumulating interest and try to repay some principal. If you choose to do so, you will need to make that arrangement with your loan servicer so that any automatic payments may resume.
Have questions regarding student loan changes? Get in touch with a financial advisor at GBB at (916) 924-7527.