Cares Act Student Loan Debt in 2021

On March 31st, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in the United States. The U.S. Department of Education announced on January 14, 2021, an additional $21.2 billion is now available to higher education institutions to ensure learning continues for students after providing $22.7 billion on 27th December 2020.

Several plans relating to student loan payments, including updates to previously announced student loan changes have been included in the cares act.

The Federal Student Aid (the Department of Education’s website) and the websites of the loan servicers are up to date with the details of how some of the requirements were implemented.

Below were the main provisions of the bill and what they mean for student loan borrowers in repayment. It is important to remember that these provisions mostly apply to federally held Direct loans.

- The recertification deadline for income-driven repayment plans will be extended.

If you are currently enrolled in an income-driven repayment plan and your annual recertification date is before September 2021, the deadline is automatically extended.

· There will be no payments due on federally held student loans from March 13th 2020 through September 30th 2021.

Direct debits were suspended automatically by loan servicers, and they were required to notify borrowers of this by April 15th 2020. If you made a payment after March 13th, you can request to have it refunded.

· Interest will not apply on federally held student loans until September 30th 2021.

This means your loans will have a zero interest rate through the end of September. If you make payments during this period, the payments will be applied to any outstanding interest, but then redirected to the principal of your loan balance.

· Suspended payments during this period will be reported to credit agencies as on-time monthly payments.

This will work differently from a normal forbearance and will be more beneficial to borrowers’ credit scores.

· Suspended payments during this period will go towards forgiveness programs

Like forgiveness and Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR). If you are already on track for programs like PSLF, you can halt making payments and they will still count toward the 120 required for forgiveness.

· Involuntary collection on defaulted federal student loans will be paused.

If your loans have defaulted and your wages or tax returns have been garnished, that should stop. If you’re in the process of rehabilitating your defaulted loans, the months of suspended payments will add up towards your rehabilitation payments.

· If you had to withdraw from school during the coronavirus crisis, your direct loans will be cancelled.

The relief provided by the CARES Act does not just apply to current college students. There are many people of all ages who are still paying down student loans.

· You will be notified at least six times before the payments resume.

Starting on August 1st 2020, servicers were required to notify you via phone, mail, or email with details of when and how your payments will resume. They were also required to communicate options like income-driven repayment to make sure payments stay affordable.

The federal government stated that these benefits will be applied retroactively, so don’t worry if you don’t see the details reflected on your account yet. Ensure that your loans qualify for the benefits.

How to relieve your student loan burden

· If possible, refinance your loan.

Some banks and creditors allow you to refinance your student loans. This means that the bank will pay off your existing loans and you will enter a loan contract with the bank at a lower interest rate.

The bank does this to reap the revenue of your loan. Just be wary that many banks offer to refinance through a variable interest rate (the interest rate will change over time) and low-interest rates will not stick around forever.

· Find a steady job that is likely to advance your career.

While student loans are burdensome, do not let those loans consume you. It is easier to pay off your loans when you have a job that will pay you a good amount of money on a regular schedule. As you advance your career, you’ll find that paying off those student loans becomes easier.

· Do not pay off your student loans early.

Assuming that you are on a fixed payment schedule, the real cost of paying off a loan is highest at the early stages but will diminish over time due to higher purchasing power (inflation). If you pay off a loan excessively early, you are paying a higher real cost for the loan.

· Consolidate your loans.

If you took out student loans over the past four years, you may find that various portions of your loans have different interest rates. Each portion is considered a different loan. If you consolidate your loans, you may be able to have a lower overall interest rate and, thus, lower monthly payments. You may also become eligible for other repayment options (ie. income-based repayment).

· If you are currently in the 90 day refund period, make regular payments on the principal.

During the first 90 days of servicing your loan, you may apply payments to the principal of your loan. Making these payments will allow you to lower the overall cost of your debt.

· Save, Youth is a magical time

You can do things that you will never be able to do when you grow older. However, that is not an excuse not to save. Remember, the person you are today is also responsible for the well-being of the person you will become tomorrow. Decrease spending where you can, make extra money where you can, and save your money in a brokerage account and Roth IRA. Remember the power of compound interest!