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