Due to the coronavirus outbreak and its impact on the economy, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March. The CARES Act gave some federal loan borrowers relief, temporarily suspending their loan payments and reducing their interest rates to 0%.
The CARES Act was originally set to expire on September 30, and payments and regular interest rates were supposed to be reinstated on October 1, 2020. However, President Trump signed an executive order on August 8 that extended the payment suspension until December 31, extending its benefits but raising some new questions for student loan borrowers.
Here’s what Trump’s executive action means for you, and what to do if you don’t qualify for the CARES Act federal student loan protections.
How CARES Act executive order affects your student loans
For federal loan borrowers who may be still experiencing financial hardships because of the COVID-19 pandemic, President Trump’s executive action was welcome news.
Under the executive action, certain CARES Act protections have been extended until December 31, 2020:
- Federal loan payments suspended
- Interest rates reduced to 0%
- Collection activities postponed
The Education Department has clarified that the extension includes the prior CARES Act protections for those pursuing Public Service Loan Forgiveness and loan rehabilitation, with non-payments during this period still counting as qualifying payments for the Public Service Loan Forgiveness program and the federal loan rehabilitation program.
Thanks to the executive action, you won’t have to make payments on your loans, and you won’t become delinquent or enter into default. You can use the money you would’ve spent on your payments on rent or other necessary expenses. Or, you can continue making payments on your loans to accelerate your repayment. Since interest rates are set at 0%, you can use this period to chip away at your loan principal.
Who is eligible for the CARES Act federal student loan protections?
Unfortunately, not all student loan borrowers are eligible for the CARES Act federal student loan protections. Only federal Direct Loan borrowers and those with federally held FFEL Loans qualify, so you must have one of the following loan types:
- Direct Subsidized
- Direct Unsubsidized
- Grad PLUS
- Parent PLUS
- Direct Consolidation
- FFEL Loans currently owned by the U.S. Department of Education
Should I refinance my student loans?
While federally held student loans are covered by the bill, neither Perkins Loans nor privately-held FFEL loans are covered by the bill. Private student loans are also ineligible for the CARES Act protections and the executive action extension.
If your loans don’t qualify, now may be a good time to consider student loan refinancing. Student loan refinancing rates are at an all-time low, so you can reduce your rate, lower your monthly payment, and save money over the length of your repayment term.
When you refinance, you apply for a loan from a lender like ELFI for the amount of your combined existing debt. Your new loan will have different terms, such as interest rate, monthly payment, and the repayment period. To get the lowest student loan refinancing rates, you typically need good to excellent credit, and you need to opt for a shorter loan term.
With good credit — or a cosigner to apply for the loan with you — you may qualify for a lower interest rate than you have now and save a significant amount of money.
For example, if you had $40,000 in student loans at 6% interest and a 10-year repayment term, you’d pay $53,290 over the length of your repayment term.
But if you refinanced and qualified for a 10-year loan at 4% interest, you’d pay just $48,598. By refinancing your student loans, you’d save $4,692, and you’d even reduce your monthly payment.
Original Loan
Balance: $40,000
Interest Rate: 6%
Loan Term: 10 Years
Minimum Monthly Payment: $444
Total Interest: $13,290
Total Repaid: $53,290
Refinanced Loan
Balance: $40,000
Interest Rate: 4%
Loan Term: 10 Years
Minimum Monthly Payment: $405
Total Interest: $8,598
Total Repaid: $48,598
Use the student loan refinance calculator to find out how much you save by refinancing your student loans. If you decide to move forward with refinancing, you can get a rate quote from ELFI without affecting your credit score.*
*Subject to credit approval. Terms and conditions apply.
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