The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") provided numerous updates for borrowers of Federal Student Loans as of April 14, 2020:
I. Federal Student Loan Relief Measures
- Tolling Interest Accruals
Interest will be waived on all eligible student loans effective March 13, 2020 and continuing through September 30, 2020;
Payments on eligible student loans will be automatically paused through September 30, 2020; borrowers do not need to take any action to receive this benefit. There will be no penalties or late fees assessed.
Borrowers on an income driven repayment plan may stop payments through September 30, 2020 and still have skipped payments count towards their 20 or 25 years (depending on the plan) of payments.
Borrowers who are pursuing Public Service Loan Forgiveness may stop payments through September 30, 2020 and still have skipped payments count toward the 120 monthly payments required.
II. Employer Student Loan Contributions
The Act amends the Internal Revenue Code ("IRC") Section 127 to incorporate provisions of The Employer Participation in Repayment Act. This provision of the Act allows employers to pay up to $5,250 of an employee’s student loan debt on a tax-free basis
From March 27, 2020 through December 31, 2020, employers may reimburse employees up to $5,250 for loan repayment assistance or other education-assistance payments.
The Act offers relief for most federal student loan borrowers (including those who have direct loans, Perkins loans and Federal Family Education Loans owned by the U.S. Department of Education) by automatically suspending monthly payments from March 13, 2020 to September 30, 2020. While loan payments are suspended, interest will not accrue. Please note, the Act relief does not apply to private student loans.
Additionally, a new trend is emerging where employers are establishing student loan payment programs that are akin to 401(k) programs, where businesses match employee contributions to their retirement fund.
Category: COVID-19 Relief Law
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