Student loans and the CARES Act

Provisions under the CARES Act may help federal student loan borrowers.

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Key takeaways

  • The CARES Act, signed into law March 27, paused federal student loan payments and interest through September.
  • You can continue making regular payments during this time—and even make extra payments to pay down your loans faster.
  • Check with your loan servicer to make sure your extra payments are applied to principal.

In late March, the CARES Act was passed to help Americans get through the COVID-19 crisis. The new law has some major short-term implications for federal student loan borrowers.

The CARES Act and federal student loans

The provisions in the CARES Act apply to federal student loans, specifically Direct loans and Federal Family Education Loans (FFEL) that are owned by the US Department of Education. Private student loans were not included in these provisions.

  • Interest on federal student loans will be waived through September 2020, starting March 13.
  • Payments on federal student loans are automatically suspended from March 13 through September. You can keep making your payments if you are able to. It should be noted that the loan is paused, not forgiven, and the 6 months of suspended payments will still be due.
  • If you do decide to suspend payments on federal student loans, each month of missed payments will be recorded as though you did make the payment for the purpose of loan forgiveness programs.
  • Loans enrolled in a rehabilitation program due to defaults also qualify for forbearance and the missed payments will be recorded as though the payments were made.
  • Wage garnishment or other collection activities on defaulted federal student loans will be suspended through September 2020.
  • Federal student loan borrowers who must withdraw from school because of COVID-19 will have part of their Direct loan for that period of time canceled.
  • People who have a student loan repayment benefit from their employer also get some help. The CARES Act allows up to $5,250 of employer contributions to their student debt to be excluded from gross income through December 31, 2020. In other words, the first $5,250 your employer contributes to your student debt repayment will be tax-free in 2020.

Take advantage of 6 months of interest-free payments

Student loan details to know

1. Monthly payments
2. Interest rates
3. Balances
4. Loan types

People who want to continue making their student loan payments through the crisis can do so.

Because interest will not be accruing through September, you'll have the chance to put the full amount of your payments toward principal. That can help you pay down the loans faster. If you're able to, you could consider making extra payments during this time when no interest is accruing on the loan.

Remember that:

  • You may have a new federal and/or private student loan for each semester of school.
  • Each loan may have a different interest rate.
  • The type of loan you have can affect the way interest builds up over the years—as can the repayment plan.
  • You can call your loan servicer and ask them to explain your loan to you.

Read Viewpoints on A guide for student loans

Learn how to apply extra payments to student loans

Making extra payments on your loans can reduce interest costs and shorten the repayment period. And here’s some good news: All education loans, both federal and private, allow extra payments with no penalties or fees.*

Use Fidelity's student loan tool to see the impact of extra payments on your loans.

There are 2 basic strategies for tackling debt: the snowball method and the avalanche method.

The snowball method starts with your lowest balance loan. Pay it off as quickly as possible. It feels good to have one less payment each month—and frees up some money you can then use to pay off the next lowest balance. As loans are paid off, you then apply the payments that were going to the paid-off loan to the next one. So the amount you’re able to funnel into extra payments gradually grows—like a snowball.

The avalanche method starts with the highest interest rate loan. After you pay it off, you can put those payments toward the loan with the next highest interest rate. This method can save you the most money in the long run because you’re chipping away at the most expensive loans first.

Tell your loan servicer how to apply your extra payments

It can take some time to see the impact of your extra payments. Using tools like Fidelity's student loan tool can help renew your motivation and inspire you to keep going.

Now, here's an added wrinkle—on top of finding the money to make those extra payments. Your loan servicer may not always apply your extra payments to principal. They may assume you're prepaying for next month. So it can make sense to call them and ask that your extra payments go toward the loan balance—or you may be able to give instructions online.

Next step to consider

Plan your attack on loans

Our student loan tool can help you evaluate repayment options.

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