Anyone paying on federally held student loans is getting a reprieve on this debt, thanks to a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act authorizing the automatic suspension of principal and interest payments on federally held student loans through September 30, 2020. These suspended payments will count towards any student loan forgiveness program.
Please note that this suspension of payments applies only to student loans that are held by the federal government. Loans obtained from private lenders such as banks, credit unions and schools, are not eligible for this benefit. Also, some federal student loans under the Federal Family Education Loan (FFEL) Program are owned by commercial lenders, and some Perkins Loans are held by the institution the student attended; therefore, those loans are also ineligible for this suspension.
Federal student loan borrowers do not need to take any action to suspend payments. Rather, the loan servicer automatically will suspend all payments, and interest will not accrue. For credit reporting purposes, all suspended payments are being treated as if the borrower made a regularly scheduled payment.
For federally owned student loans that are in default, the Department of Education has automatically stopped the collection of these loans, including the garnishment of wages, the offset of tax refunds, and Social Security benefits. No additional action is required on the part of defaulted borrowers of federally owned loans. The CARES Act stipulates that each month for which an involuntary collection is suspended, it will be as if a collection was made.
While not a student loan forgiveness program, the CARES Act also expands the tuition reimbursement programs offered by employers under Education Assistance Programs. Specifically, employees do not need to include payments made by an employer as taxable income, up to a maximum of $5,250. This includes principal or interest payments on student loans, or tuition, fees, books, etc., for classroom work. This “income forgiveness” on employer payments is only effective for payments made after March 27, 2020 (the date of the enactment of the CARES Act) and prior to January 1, 2021.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
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