The CARES Act: Student Loan Provisions

Post On: April 22, 2020

Posted In: COVID-19 Market Update

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 is an estimated $2 trillion package. In this series, we will discuss four of the most notable provisions for individuals and families.


Relief for Student Loan Borrowers

The CARES Act includes several provisions aimed at providing relief to student loan borrowers.


Student loan payments deferred until September 30

The Act suspends required payments on Federal student loans through September 30, 2020. During this time, no interest will accrue on this debt. Although required payments are suspended, voluntary payments are not prohibited, which means, payments will continue unless individuals take proactive measures to contact their loan provider and pause payments.


Also notable is that this period of time will continue to count towards any loan forgiveness programs. As such, any student borrower who intends to qualify for a program that will ultimately forgive the entirety of their Federal student debt (such as the Public Service Loan Forgiveness program) should immediately pause payments.


Finally, all involuntary debt collections are also suspended through September 30, 2020. This not only includes wage garnishment or the reduction of other Federal benefits, but the reduction of any tax refund (for student loan purposes). As such, borrowers of student debt who are delinquent on payments and would normally be subject to a reduction of their tax refund have an incentive to file their tax returns early enough, so that the refund is processed before this relief expires.


Employers can exclude student loan repayments from compensation

The Act provides employers a (very) limited window of time in which they can take advantage of a special rule to aid employees paying down student debt. Normally, amounts paid by an employer to an employee which are used to pay student debt (or payments made by an employer directly to the loan provider) are considered compensation to the employee, and are subject to income tax.


However, employers have from the date of enactment of the law through the end of the year to provide employees with up to $5,250 for purposes of student debt payments, and exclude those amounts from their income. This amount, however, is coordinated with the ‘regular’ $5,250 limit that employers can provide employees tax-free for current education. As such, total maximum tax-free education assistance an employer can provide an employee in 2020 is $5,250.


Pell Grant and subsidized Federal student loan relief for students leaving school

Both Pell Grants and Subsidized Federal Student loans are subject to limitations. The CARES Act excludes from a student’s period of enrollment any semester that a student does not complete due to a qualifying emergency and does the same with respect to the Federal Pell Grant duration limit.



Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.
This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.

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