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Some Good News: How The CARES Act Helps Student Loan Borrowers

Updated: Jun 24


If you are like me, you enjoyed the college experience and the great opportunities offered after graduation, but the price tag was hefty. According to Debt.org, the total U.S. Student Debt is $1.4 trillion and the average student has a little over $37,000 in student debt.


Relief from Federal Student Loan Payments


The CARES Act was signed into law on March 27, 2020 and temporarily provides broad relief while our country struggles with the effects of the Coronavirus. Federal student loan borrowers are in automatic forbearance; which means your federal student loan payments automatically stopped March 13, 2020 and will not restart until September 30, 2020. Most notably, during this time interest rates have been temporarily set to 0%.


This is a welcome break for anyone who has experienced unexpected unemployment. It is important to note this change may not apply for private student loans (Sallie Mae or Earnest). Many borrowers may have both federal and private student loans and you will need to check with your private loan provider to find out what your options are during this time. 


The Good News


If you are fortune enough to be unaffected financially by COVID-19, you are presented with a unique opportunity and should put the pedal to the metal paying down your student loans. For the next six months your federal loans will accrue no interest and every penny you put towards them will go straight to principal. I recommend that you keep paying your normal monthly amount (and extra if you can) toward your loans and watch as the balances get smaller! For many of us, the stay at home order has significantly reduced our variable expenses; we are not going out to eat or to the movies, and this extra money can be used to pay down your student loans. Your future self will thank you!


However, many federal student loans have relatively low interest rates; if you have both federal and private loans, it would be wise to use the break from your federal student loans and apply that payment to your highest interest rate loans for the next six months. For example, if you normally pay $100 a month toward your federal loan with a 4% interest rate and $200 a month toward your private loan with a 6.5% interest rate, you could now pay the entire $300 toward your private loan because it has the highest interest rate.


These are challenging times and my thoughts go out to everyone who has been impacted by COVID-19. The CARES Act has provided swift and sweeping changes to help those affected by the Coronavirus. The assistance applied to federal student loans creates breathing room for many who have seen a drastic change in their employment and/or monthly income but created a unique opportunity for those who have not been financially burdened during this time.

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