How The CARES Act Affects Student Loans & Repayment

Updated October 26, 2021

The average individual’s student loan debt in the United States is $39,351, and student loan debt continues to grow at a rate of 23.6% annually. This year, many of the country’s more than 44.7 million student borrowers felt the economic impact of COVID-19, which skyrocketed unemployment rates and created financial hardship worldwide.

The COVID-19 pandemic has increased financial stress, with 59% of student loan borrowers reporting higher debt-based anxiety and depression levels.

As many borrowers have struggled with student loan repayment during this time, the Coronavirus Aid, Relief and Economic Security (CARES) Act provided welcome relief. Stimulus checks helped cover necessity expenses early in the year, and administrative forbearance temporarily paused federal student loan payments and interest.

What Is the CARES Act?

In March 2020, President Trump signed the CARES Act into law, setting aside $2 trillion for COVID-19 relief funding. Amid record-breaking levels of unemployment and job loss, this act offered some economic breathing room for the millions of individuals impacted nationally by the pandemic.

A few major CARES Act provisions included:

• Temporary administrative forbearance on federal student loan payments and interest
• Expanded employer student loan repayment and contribution options
• Economic Impact Payments, or stimulus checks, for qualifying individuals and families
• The Paycheck Protection Program (PPP) to support small businesses
• Expanded unemployment insurance for those professionally impacted by COVID-19
• Financial aid for state, local and tribal governments

CARES Act Student Loan Borrower Protections

In the United States, more than 44 million borrowers in the United States carry student loan debt totaling nearly $1.6 trillion. The CARES Act continues to help borrowers avoid missing payments or defaulting on student loans. It has been crucial as unemployment numbers have risen to staggering heights as a result of COVID-19.

Several CARES Act provisions were designed to provide relief to federal student loan borrowers. These include: 

• Temporary administrative forbearance on federal loans through January 31, 2022
• 0% interest on federal student loans during student loan forbearance
• Extended recertification deadline for income-driven repayment plans

During the forbearance period, any federal student loan payments have been applied to the loans’ principal balances. That means borrowers who have continued to make regular payments have been able to pay down their loans more quickly. On the reverse side, individuals who have not made payments have not been penalized or accrued interest on their loans.

Which Types of Student Loans Qualify?

The CARES Act does not cover all types of student loans, but it does cover several different federal student loans. The following student loans are included in administrative forbearance:

• Direct Stafford Loans
• Direct PLUS Loans
• Direct Consolidation Loans
• Some Federal Perkins Loans
• Some Federal Family Education Loans (FFEL)

On the other side, some student loans are not covered by CARES Act provisions, including:

• Private student loans
• Federal Family Education Loans (FFEL) owned by commercial lenders
• Perkins Loans owned by schools

To find out who your private student lender is, check your credit report, and contact them for information about loan repayment assistance if needed. To find out who your federal loan servicer is or if your federal student loans are eligible for administrative forbearance, sign into the Federal Student Aid portal. 

How Long Will Administrative Forbearance Last?

CARES Act administrative forbearance began in March, and it was initially scheduled to end in September of 2020. As COVID-19 continues to spread, however, we have seen two student loan forbearance extensions. It is now set to end on January 31, 2022.

The latest CARES Act forbearance extension is designed to cover the presidential transition. After Joe Biden’s inauguration, Congress will have more time to pass legislation for an additional extension. This also gives Biden time to extend administrative forbearance through an Executive Order.

We should not, however, assume that forgiveness will be extended. Until otherwise notified, you should prepare for resuming student loan payments. That will help ensure you’re ready when the forbearance period ends, and you won’t be penalized for missing a student loan payment.

Will Student Loans Be Forgiven?

Remember that forbearance does not mean forgiveness. Because all payments are currently being attributed to principal, borrowers who make payments during the student loan forbearance extension period will enjoy lower balances when payments resume. Rather than accruing interest, borrowers who have not made payments will have the same balances as when administrative forbearance began.

It’s important to note that the temporary suspension will not affect Public Service Loan Forgiveness (PSLF) eligibility. However, those who wish to continue making progress towards the 120 qualified payments for PSLF must continue working full-time, 30 hours or more, for a qualifying employer. 

It’s especially important to be wary of student loan scams during this time. If you receive a call, text or email from an entity promising student loan forgiveness for a fee, it’s likely a phishing attempt. Rather than moving forward with the offer, call your lender directly to determine if questionable communications are real.

Will My Credit Be Hurt if I Don’t Make Payments During Forbearance?

Because federal student loan payments are temporarily suspended, your credit score will not be negatively affected if you don’t continue making payments during forbearance. On the contrary, if your loans are in default, this is a great time to catch up on any missed payments. Returning to good standing could improve your credit score.

If you have student loans that have not been suspended, however, you should continue making regular student loan payments. Not making payments on your private student loans, or on commercial or school-owned federal student loans, could damage your credit score.

Coronavirus Student Loan Scams

Don’t be tricked by student loan scams! It’s more important than ever to be vigilant for scammers who try to use the economic downturn for personal gain. You may receive calls offering financial relief or student loan forgiveness at a cost. You may also be notified that payment suspension costs money. These are scamming attempts and should be ignored.

To help protect yourself from scams, keep in mind that:

• There is no fee for payment suspension or 0% interest
• There is no COVID-19 related forgiveness for federal student loans
• You should never give out your FSA ID or password to unfamiliar contacts

If you aren’t sure whether a communication is legitimate, call your lender directly. Be sure to use their official contact channels, such as the phone number provided on their website, to avoid being directed to a scammer.

What Should I Be Doing Right Now?

We’re all doing our best to navigate these unfamiliar circumstances. If you’re concerned about resuming student loan payments after the CARES Act extension period ends, student loan refinancing could help you pay down your loans more quickly.

You have several options when it comes to preparing for the end of forbearance, including but not limited to:

• Making payments on your federal loans in forbearance to lower the principal amount
• Using the amount you’d normally pay toward federal loans to make larger payments on any student loans that are still accruing interest
• Consider income-driven repayment or student loan refinancing to lower your monthly student loan payment after forbearance ends
• Contact your loan servicer for assistance or consider private student loan refinancing if you’re struggling to make payments on loans not currently in forbearance

Refinance With ELFI

Especially in the current economic climate, student loan refinancing could lower your interest rate, which saves you money over the life of the loan. You can also choose to refinance only the student loans that are ineligible for CARES Act protections.

Contact ELFI to find out if you meet the eligibility requirements for student loan refinancing. If you are a current ELFI borrower, please contact your Personal Loan Advisor for any questions.