President Donald Trump (Photo by Drew Angerer/Getty Images)
The new $2 trillion Coronovirus stimulus legislation doesn’t offer any student loan forgiveness. Or does it?
Here’s what you need to know.
The CARES Act provides multiple benefits for your student loans, including help to manage your money due to the coronavirus emergency. Among other benefits, the CARES Act provides through September 30, 2020:
The legislation, which President Donald Trump signed last week, builds upon Trump’s executive action to waive interest on federal student loans and stop collection of student loan debt from 9 million student loan borrowers. Previously, Trump announced that you have an option to stop paying your federal student loans for 60 days and can get student loan forbearance by contacting your student loan servicer. The new legislation extends these benefits for several months and makes them automatic. These student loan repayment benefits are in addition to Trump’s paid sick leave plan, for which many student loan borrowers also may qualify.
Student Loan Forgiveness
The CARES Act does not include any direct student loan forgiveness for student loan borrowers. Senate Democrats proposed a student loan forgiveness plan that would forgive at least $10,000 of federal student loans for all borrowers. House Democrats proposed that every borrower receive $30,000 of student loan forgiveness. Neither proposal was included in the legislation. Former Vice President Joe Biden supports $10,000 of student loan forgiveness in addition to his $750 billion student loan plan, although this new plan differs from Sen. Elizabeth Warren’s original student loan forgiveness plan to cancel student loan debt and Sen. Bernie Sanders’ proposal to forgive all $1.6 trillion of student loan debt.
So does that really mean no student loan forgiveness?
There’s actually a hidden way to receive student loan forgiveness inside the CARES Act and it applies to borrowers who are pursuing public service loan forgiveness. Although Trump has called for the end of the Public Service Loan Forgiveness program in his annual budget in favor of a simplified income-driven repayment plan, and Secretary of Education Betsy DeVos has explained why she believes it’s a good idea to end this student loan forgiveness program, the public service loan forgiveness program is still active. The CARES Act provides a specific benefit for borrowers pursuing public service loan forgiveness. Some borrowers have asked about the new announcement regarding suspension of all federal student loan payments and whether it is a good idea to stop paying your federal student loans. The Public Service Loan Forgiveness program requires 120 monthly federal student loan payments, although the payments do not need to be consecutive. Borrowers don’t want to make one mistake and get rejected for student loan forgiveness. When you contact your student loan servicer or visit the website of the U.S. Department of Education, you may be told that you can’t make a qualifying payment for public service loan forgiveness while your federal student loans are in forbearance. So, how do pause student loan payments and not kill your chances for student loan forgiveness?
You can exhale: any federal student loan payments that you skip between now and September 30, 2020 will count toward the 120 required payments. While the Education Department or your student loan servicer may not yet have updated their websites (because the legislation is brand new), this benefit is part of the CARES Act and non-payment will not be treated like a regular forbearance. So, think of it this way: traditionally, you’re required to make 120 monthly payments. If you pause federal student loan payments through September 30, 2020, then you will no longer need to make 120 payments because these non-payments still will be “counted.” This means not only will you make fewer payments, but also you will pay off less of your student loan balance. If you pause federal student loan payments, effectively you can save money and receive more student loan forgiveness since technically you may not make 120 payments. From this perspective, the CARES Act provides a “secret” student loan forgiveness provision for borrowers pursuing public service loan forgiveness.
How To Pay Off Student Loans
What else you can you do to pay off your student loans faster and save money during this challenging period? Here are four options, all of which have no fees: