CPA Chats: STUDENT DEBT RELIEF & the CARES ACT
Thank you for the shares & comments on my last CPA CHATS post regarding the economic impact payments. I’m happy to see that information was helpful to so many of you. I thought it would be great to continue this series to touch on tax/financial effects from the CARES Act.
Not being discussed enough in my opinion is the relief that is currently available for student debt especially when it affects so many. So, let’s chat about it.
There are 3 components to this relief:
1. Federal student loan payments are suspended. This is currently set to continue until 9/30/2020. The federal student aid website states they have automatically placed all eligible loans in administrative forbearance (i.e. temporary postponement of payments).
If you’re currently enrolled in an auto-debit plan those should have automatically stopped. Any auto-debit that was processed between 3/13/2020 - 9/30/2020 can be refunded.
A little tip from your friendly neighborhood CPA: If you are financially sound, I highly recommend continuing to make payments. You may need to contact your provider to resume those auto-debits. You can also make partial payments. If you continue to make full/partial payments of whatever you can afford, this could help you pay down your loan balance more quickly because the full amount of a payment will be applied to principal once all interest accrued prior to March 13, 2020, is paid. See number 2 for more insight.
2. The interest rate is temporarily set to 0% on federal student loans. As of now this is set to continue until 9/30/2020. This was an automatic action that has been applied to all eligible loans and requires no action on your part.
An important note is that this doesn’t apply to ALL student loans. Specifically it applies to defaulted and non-defaulted Direct Loan, defaulted and non-defaulted FFEL Program loans, and Federal Perkins Loans. An important caveat to this is that if your FFEL loan is owned by a commercial lender or if your Perkins Loan is owned by your educational institution - these loans are not eligible for this relief currently. If this is the case for you, the student aid website in the FAQ link below offers tips on how to consolidate your loans in order to take advantage of this interest free time.
Private student loans are not included in this relief as the US Dept of Education has no authority over those lending institutions.
3. Students in default are no longer subject to IRS garnishment. If a garnishment is received in the period between 3/13/2020 - 9/30/2020 it will be refunded. If you filed your taxes in this period and your refund was expected to be withheld to pay toward defaulted student loans, you will receive your tax refund. However, if you filed your taxes and your refund was already processed as payment toward your defaulted loans, it will not be refunded.
Here are a few helpful resources to help you if you have federal student loans.
The Federal Student Aid Website:
https://studentaid.gov/
FAQ:
https://studentaid.gov/announcements-events/coronavirus…
I’ll do my best to provide direct links/resources to government agencies as I find the information directly from the agencies to be the most reliable source. While news articles can sometimes be helpful, they are not always accurate.