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Need a break from bill payments? The CARES Act could help with your student loans

Key Takeaways

  • The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes a provision that offers relief for those with federal student loans.
  • Under the legislation, individuals with qualified federal student loans can take advantage of a six-month payment reprieve and 0% interest.
  • The pause is automatically available for all qualified federal loans, though you can continue to make your payments to shorten the term of your loan.

By Gina Gallagher | Citizens Bank Contributor

We could all use a break from everything going on in the world today with the COVID-19 pandemic. If you’re among the hundreds of thousands of people with federal student loans, you might have just received one: a six-month temporary pause on your student loan payments plus 0% interest.

It’s a cause for celebration, courtesy of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion landmark stimulus legislation designed to provide relief for the individuals, families, and businesses struggling with the financial impact of the coronavirus.

As with any federal legislation, there’s lots of important and complicated information to unpack. To simplify things and help you determine how the CARES Act could potentially benefit you, we’ve put together answers to some commonly asked questions and steps you can take. Click to jump ahead to any of the following questions:

How does the CARES Act impact student loans?

In addition to offering cash relief for individuals and loan programs for small businesses, the CARES Act provides help for student loan borrowers via a temporary suspension of payments for most federal student loans. Under the law, qualified federal student loan holders may take advantage of a six-month payment hiatus, from March 13 through September 30, 2020, with no accrued interest. That means if you have a qualifying federal loan, you won’t have to make a payment or pay interest until your payments resume in October.

The program also offers another temporary benefit for those who are in default: the six-month suspension of involuntary collection practices. So if your loan is in default during the suspension period, you won’t have to worry about your wages being garnished.

What types of loans qualify for the payment suspension?

The majority of federal loans are eligible for the program, including:

  • Direct unsubsidized and subsidized Stafford loans
  • Direct PLUS loans for parents and graduate students
  • Direct Consolidation Loans

Older loans, such as Federal Family Education Loans (FFEL) and Perkins loans are only eligible if they are held by the U.S. Department of Education. That means if you have an FFEL or Perkins loan held by a university or commercial institution, you’re not eligible for the payment suspension.

Tip: If you’re not sure if you have an eligible federal loan, log in to your loan servicer’s website or contact them to determine the type of loan you have.

RELATED: Pell Grants, Subsidized, and Unsubsidized Loans: What Do These Terms Mean?

What can I do if have a federal loan that’s not eligible?

If you have an FFEL or Perkins loan that’s not eligible, you could apply for a federal Direct Consolidation Loan, which would allow you to consolidate your federal loans and maintain federal benefits, including your eligibility for loan forgiveness.

Are private loans I have with financial institutions eligible?

The CARES Act — and the temporary suspension of payments — does not apply to student loans you have with banks, credit unions, and other private lenders. Many private lenders are, however, offering relief programs and payment plans for those who are experiencing financial difficulties as a result of the coronavirus. To inquire about what might be available to you, contact your private loan servicer.

If you are a Citizens Bank customer, our colleagues are ready and available to listen and offer guidance during this difficult time. Please call 1-888-411-0266 to speak to a Student Lending Specialist or visit our Student Lending page and use our chat functionality from home.

When does the federal loan payment suspension go into effect?

Though the CARES Act was signed into law on March 27, the payment suspension is retroactive to March 13, when President Trump announced 0% interest on federal student loans. If you made your March federal student loan payment, it’s possible that the servicer of your student loan did not have the necessary changes in place to implement the 0% interest reduction. As a result, you may have been charged interest for the entire month of March, when you should have only been assessed interest for the period before March 13. If that’s the case, you may want to contact your servicer to inquire about an interest rate rebate for the period after March 13 until the time your servicer updated their systems.

What do I have to do to take advantage of the federal loan payment suspension?

Believe it or not, nothing — provided you have a qualified federal student loan. Your loan servicer should have automatically updated your interest rate to 0% and stopped your payments until October. So there’s no need to send in a payment if you want to take advantage of the pause.

If you have your payments automatically deducted from your account each month, your servicer should have stopped them unless you have made other arrangements (more on that later).

When will my payments resume?

The suspension is in effect until September 30, so your next payment won’t be due until October. Prior to that time, your servicer should send you a reminder that your payments will resume.

Does the payment pause mean my loan will be forgiven for those six months?

The pause is just as it sounds — a temporary break in your payments. When it ends and you have to resume your payments in October, the amount you owe will be the same as it was on March 13 (unless you made payments during the suspension). Keep in mind, if you choose not to make payments during the suspension, the term of your loan will be extended by the number of months in which you did not make payments.

However, if you're currently on an income-based repayment plan, the six months of suspension will count toward the required 20-25 years of payments.

Will my payments still be interest-free after September 30?

Like the payment suspension, the 0% interest rate will expire in October, and your loan will revert back to the original interest rate.

What if I’ve applied for loan forgiveness? Will this impact my eligibility?

The Public Service Loan Forgiveness Program (PSLF) requires that you meet certain criteria, including having a track record of making 120 monthly payments. The pausing of your payments will not impact your eligibility provided you have a full-time job with a qualified public or nonprofit organization. In such cases, the six months when your payments are paused will count toward the payment requirement. More good news.

If, however, your hours have been cut or you have been laid off or furloughed from your full-time job because of COVID-19, your suspended payments will not count toward the PSLF required monthly payments. But since payments don’t have to be consecutive, you can still work toward the requirements once you return to full-time status with your current employer or get a new full-time job with a qualified entity.

Will taking advantage of the pause hurt my credit or result in additional interest fees?

The pause will not impact your credit, since your payments will not be considered missed payments. It also won’t result in your having to pay more in interest fees, since there will be no additional interest charged during the suspension period.

What if I don’t want to pause my student loan payments? Can I continue to make them?

The program was designed to provide relief to those who need it. If you can afford to continue making your payments, you should make them. In fact, the 0% interest rate during the suspension makes it a great time to make payments, since your entire payment will be applied to the principal. This would allow you to pay off your federal student loan(s) faster.

Steps you can take to take control of your student loans

Now that you know a little more about the CARES Act, there are some steps you can take to help put the program to work for you and take control of your other loans.

  • Learn more about the CARES Act: For more information and frequently asked questions, visit the Federal Student Aid website.

  • Verify that changes have been made on your account: The speed at which the legislation was enacted required loan servicers to update their systems in a short amount of time. As a result, mistakes can happen. To ensure your loan has been correctly updated, log in to your servicer’s website. Make sure the interest rate is set at 0% APR and that your next due date is set for October.

  • Talk to your servicer about continuing payments: If you wish to continue making payments during the suspension, contact your servicer to continue automatic payment (if you have it) or for instructions on how to make other payment arrangements.

  • Be ready to resume payments in October: Your servicer will send you a notice prior to September 30 to remind you that your regular payments will resume. Regardless of whether you receive that notification, you should prepare to make your regular payment. If you are still experiencing financial difficulties, contact your servicer prior to the payment due date.

    If your loan is in default, be aware that you could be subject to involuntary payments beginning in October.

  • Contact your private loan servicers: If you have a private loan and are experiencing difficulties making payments, contact your lender as soon as you can to notify them. The worst thing you can do is nothing. You may also want to talk to your lender about potential refinancing options.

We’ll get through this together

Perhaps the most important thing you can do is to take the time to seek out sound financial advice. Short-term financial decisions can have long-term effects, so it's critical to think clearly and plan as best as you can.

Our colleagues are ready and available to listen and offer guidance during this difficult time. If you’ve been impacted by the coronavirus pandemic and are facing financial hardship, please call 1-888-411-0266 to speak to a Student Lending Specialist or visit our Student Lending page – we’re on chat.

Do you have questions about how the coronavirus pandemic is impacting your banking services? We’re ready to help. Check out the COVID-19 Resource Center for regularly updated news to stay informed and find resources for the support you need.

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