The CARES Act and How it Affects Student Loans

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act of 2020) was signed on March 27, 2020.  This will provide more than US$2 trillion in relief for both companies and families affected by the COVID-19 Pandemic.  The economic fallout for families and employers has been extremely impactful, and hopefully, this relief package will make a significant difference.

The following excerpts focus on the benefits of the CARES Act for student loans.

What you need to know:

Student loan relief applies only to federal student loans owned by the Department of Education (ED) and not those owned by commercial lenders or the institution (school) attended.

Contact your loan servicer online or by phone to determine if your loans are owned by the ED and eligible for CARES Act benefits. Your servicer is the entity to which you make your monthly payment. If you do not know who your servicer is or how to contact them, visit or call the Department of Education at 1-800-4-FED-AID for assistance.

If your loans are owned by commercial lenders or your school, contact your lender directly to see if they have elected to offer any benefits.

Student loan payments are suspended until September 30, 2020

To provide relief to student loan borrowers during the COVID-19 national emergency, federal student loan borrowers are automatically being placed in an administrative forbearance, which allows you to temporarily stop making your monthly loan payment until September 30, 2020.

Action: If you choose to suspend your payments, there is nothing that you need to do on your end; you do not need to apply for this benefit nor submit any forms. Remember to cancel any automatic payments you may have scheduled.

Interest is being temporarily set at 0% on federal student loans

From March 13, 2020, through Sept. 30, 2020, the interest rate is 0% on the following types of federal student loans owned by ED:

  • Defaulted and non-defaulted Direct Loans
  • Defaulted and non-defaulted FFEL Program loans
  • Federal Perkins Loans

ED will automatically adjust your account so that interest doesn’t accrue (i.e., accumulate). The account adjustment will be effective March 13, 2020.

Continuing to make payments

If you are financially able to continue your loan payments during the administrative forbearance and 0% interest period (March 13, 2020 through September 30, 2020), the full amount of your payment will be applied to principal once all the interest that accrued prior to March 13 is paid. You can also pay more or less than your regular payment amount. Either way, the full amount of your payment will be applied to principal. Continuing to make payments could help you pay down your loan balance more quickly because the full amount of a payment will be applied to principal.

Action: Contact us to discuss your particular situation. We can review your outstanding loans and your personal finances to help you understand the benefits of continuing to make loan payments. We can also help you understand whether or not you are in the position to continue these payments.

Refunds of previously paid amounts:

Any payment you made during the administrative forbearance period (March 13, 2020, through Sept. 30, 2020) can be refunded. Contact your loan servicer to request that your payment be refunded.

Restarting loans payments after September 30, 2020:

The administrative forbearance and 0% interest period is currently set to expire on September 30, 2020. Your servicer will contact you, no later than in August, to remind you that you will need to start making payments again. Make sure your contact information is up to date in your loan servicer account profile.

Source: , as of April 1, 2020


Investment advice offered through Shepherd Financial Partners, LLC, a registered investment advisor. Securities offered through LPL Financial, member FINRA/SIPC. Shepherd Financial Partners and LPL Financial are separate entities.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.