The effect of coronavirus outbreak over student loans

The current COVID-19 virus outbreak may create a temporary financial problem for federal student loan borrowers. Borrowers who make payments hourly, or are unable to telework may face such a challenge sooner than other borrowers. The damage caused by the coronavirus outbreak is making our lives vulnerable to financial issues. So it’s important to be on your toes and prepare to face such financial difficulties as an outcome of the pandemic.

Due to the loss of jobs and falling income levels, borrowers may find it difficult to make monthly federal student loan payments. A borrower may understand the options available to him/her and should prepare early to get some well-needed relief immediately. This way the borrower of a student loan may also avoid delinquency and default of a federal student loan and the long-term outcome of them.

There are 4 income-driven repayment plans for federal student loans

  • PAYE – Pay As You Earn
  • REPAYE – Revised Pay As You Earn 
  • IBR – Income-Based Repayment
  • ICR – Income-Contingent Repayment

The U.S. Department of Education has recently declared that most federal student loan borrowers may get an opportunity to suspend their payments for approx two months. This option is announced due to the national emergency caused by the massive coronavirus outbreak. 

From March 13 to Sept. 30, during that time, no interest will be charged on the loans.

As per Forbes – “More than ever, student loan borrowers are searching for ways to lower their monthly student loan payments. The CARES Act, which is the new $2 trillion stimulus bill to help those impacted by a coronavirus, directly helps borrowers with student loans and provide financial relief. Let’s clearly understand what is included (and not included) so you can make an informed decision about your student loans.”

The CARES Act will allow all the borrowers to stop paying federal student loans from March 13 through September 30, 2020. Mark Kantrowitz, Publisher and VP of Research for, strongly believed that “interest rates on federal student loans will drop by 0.75% to 1.0% in 2020-2021. If your wages are still being garnished, contact your human resources department, as they were supposed to stop doing this.” 

You should call the Education Department’s Default Resolution Group at 1-800-621-3115 for assistance.

Secretary of Education Betsy DeVos initiated an automatic suspension of payments for any student loan borrower “who is more than 31 days delinquent as of March 13, or who becomes more than 31 days delinquent”.

So, let us see the effects of The CARES act 2020 on borrowers    

a) Suspension of payment or interest on federal student loan

From March 13 through September 30, 2020, the interest rate on federal student loans will be fixed at 0% and all payments are suspended. You don’t need to apply for that. Your federal student loan servicer will do all the needful without any delay. You don’t have to contact him either.

If you made any payment towards your federal student loan after March 13, you may ask for a refund to the student loan servicer. However, if you are financially strong to carry on with the payments on your student loans, any payments you make after March 13 will be treated as payment to the principal. This way your loan will be paid off faster.      

b) Interest and payments are suspended for federal student loan only

Only federal student loans will be eligible for the suspension of payments. Some federal student loans are owned by private lenders. Normally student loans under the Federal Family Education Loan (FFEL) Program fell into this category. 

The FFEL lender might suspend interest and payments if they want to. You may contact your servicer to check if this option is available to you.

The CARES Act does not entertain private student loans owned by banks, credit unions, schools, or other commercial companies. But some of the many private student loan lenders may implement extended forbearance options. You may contact the lender to get more information on this subject. 

If your lender does not allow suspension of student loan interest and payment, and you can’t afford your payment at all, you may opt for a debt settlement program. You may choose any of the best debt settlement companies in the USA, but make sure you read reviews online.   

c) Feds won’t charge you for suspending student loan payments

The federal government does not charge any fee to suspend your payments. If someone asks for money, it is a student loan debt relief scam and you should file a complaint to the FTC’s complaint assistant. 

The federal student loan servicer will suspend all interest and payments on your loan and send you a written notification about the suspension between March 13 and September 30, 2020. You might be getting the notice by mid of April. Make sure to update your contact information and check your mail or email regularly. You can call your servicer or call at 1-800-4-FED-AID to get all the information.              

d) The suspension does not affect your credit

You won’t get a negative credit reporting if you put your student loan into a deferment or forbearance. The CARES Act instructs credit reporting agencies and loan servicing companies to report the suspended payments for the next 6 months as a normal, on-time payment for each month.

e) Tax-Free employer contributions for student loans

If your employer makes all the student loan payments as an employee benefit, you might get extra benefits for that under the CARES Act. 

Your employer may pay up to $5,250 of your student loans tax-free this year. Apart from that, the CARES Act also prevents the involuntary collection of student loan debts during these 6 months. That means you’ll get tax refunds and Social Security benefits, with no garnishment of wages. 


You might find financial difficulties being a student loan borrower, due to the pandemic. The CARES Act does not provide for any student loan forgiveness. 

But still, do not hesitate to contact your loan servicer and look out for other options. You may use online forms on your servicer’s website or call the servicer for direct assistance.