WASHINGTON — The CARES Act, a massive $2.2-trillion economic relief package, passed by Congress in late-March, gained a lot of attention for the $1,200 checks being sent to Americans.
But this bill also offered some major changes to those with student loan debt. The Verify Team was asked to break down questions about who qualifies for the relief, and what CPA's recommend we do with the deferred payments.
First The Details:
For people struggling to pay off their student loans, the CARES Act allows you to suspend federal student loan payments for six months until the end of September. It also waives student loan interest on those federal loans as well for that time period.
It also allows employers to contribute up to $5,250 annually tax-free toward their employees' student loan debt till Jan. 1, 2021.
So, let's get to some viewer questions.
Why are some viewers learning that their federal loans are still due? Why don't the deferred payments apply?
It all comes down to who owns the loans. Some federal loans, have been purchased by private companies, which means the borrower is still on the hook.
Henry Grzes, Association of International Certified Professional Accountants
Federal Student Aid, An office of U.S. Department of Education
This question was sent to the Verify Team by viewer Krystall Mitchell, who was surprised to learn that she still owed her student loan payment.
"Why are loans under the Federal Family Education Loan Program," she said. "Better known as the FFEL Program, excluded from the CARES ACT."
The reality is that these loans are not completely excluded from the CARES Act. However, if these loans are purchased by a private company, they become ineligible.
A FAQ page for Federal Student Aid, an office of the U.S. Department of Education, explained it this way:
"Please note that some FFEL Program loans are owned by commercial lenders, and some Perkins Loans are owned by the institution you attended. These loans are not eligible for this benefit at this time."
Grez said that people like Krystal should still reach out to their private lenders, to request a relief to payments. During these chaotic times, companies might be more lenient on payments.
"At the end of the day," he said. "Banks have entered an agreement and they expect to be re-payed. But, realistically, I think people are going to be far more forgiving or far more willing to discuss any type of deferred payment."
With zero percent interest, should borrowers take advantage of the moment, and pay their loans, even though they may be deferred?
Yes, but this needs context. While it's beneficial to pay a loan with zero percent interest, there are other important considerations, such as other debts, and the need to add to savings.
Henry Grez, Association of International Certified Professional Accountants.
Spreading on Social Media are numerous claims about the benefits of paying student loans despite the fact that they are deferred, with zero percent interest.
"Even though student loan payments have been deferred until September," wrote on user. "Consider still paying them if you are able. Zero percent interest rates means that any payments made will ALL go towards principal, meaning you'll pay less in interest over the life of the loan."
The Verify Team brought this question to our expert, CPA, Henry Grez.
"I would say yes," he said. "I would absolutely say yes."
Paying a loan on zero percent interest is beneficial because the money will go entirely to the money owed, rather than toward the interest. That's why Grez said this type of payment could be beneficial.
However, Grez said there are two other very important considerations; Other debts and savings.
"If they have other debt that they're also carrying," he said. "At a much higher interest rate, use the funds for that higher interest rate loan."
Grez also emphasized that there is no way to predict how long this pandemic may last, and so it may be unwise to spend the money on deferred payments, if it could be going to savings instead.
"There's no clear cut answer," he said. "Like so many things when you're dealing with finances, every individual situation is different."