CARES Act for Employees

The CARES Act: What does it mean for debt holders?

In a nutshell: federal student loan servicers are currently suspending loan payments and setting interest rates to 0%.

Your employer can now contribute up to $5,250 tax-exempt dollars toward employees' student debt balances.

What does the CARES Act change for borrowers?

  • On March 27, 2020 the federal government passed the CARES Act to address economic fallout during the COVID-19 pandemic.
  • All federally-held student loan payments have been temporarily, automatically, paused for all borrowers.
  • Payments are suspended until September 30, 2020.
  • Interest will not accrue on federally-held loans while payments are suspended.
Can borrowers continue to make payments?

Yes. Vault advises that borrowers who are financially able to make student loan payments to continue to do so in order to take advantage of lack of interest accrual during this time period.

What should I do?

The provision enables employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income.* The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer. As an employer, you may make one time or multiple payments . The provision applies to any student loan payments made by an employer on behalf of an employee after the date of enactment and before January 1, 2021.

*Note that if you offer multiple education related benefits, you will want to track the amounts contributed to employees. Any amount the exceeds the $5250 cap is subject to taxes.

What is administrative forbearance?

If an individual elects to enter into administrative forbearance, for at least 60 days beginning on March 13, if they have a federal student loan they do not have to make payments on those loans, and interest will not accrue. Please note that this applies to federal loans only. Private loans are not eligible for this forbearance.

What do employees with loans have to do?

If an individual has federal student loans and cannot make their payments, they must reach out to their servicer and let them know that they wish to enter administrative forbearance. If they were already more than 30 days behind in their payments, their servicer has been directed to place their loans in administrative forbearance, retroactive to March 13.

Can employees still make payments on their federal loans?

Yes. Payments an individual makes during this time will be applied to any outstanding interest that accrued before March 13, and the rest will go towards their principal. Borrowers may choose to continue to make payments to make faster progress toward paying down their loans.

What about employer contributions?

Employer contributions will continue to be sent to the loan servicer you have chosen. Those contributions will be processed as usual by servicers, whether individuals elect to enter into administrative forbearance or not.

If you would like more information on student loan news, the U.S. Department of Education has published details related to the suspension of student loan payments here.

Here are other resources you might want to check out:

Coronavirus and Forbearance Info for Students, Borrowers, and Parents

hat you need to know about student loans and the coronavirus pandemic

Nelnet: Important Coronavirus Information

Navient: Update on COVID-19 and your Student Loans

Great Lakes: COVID-19 Update

FedLoan Servicing: COVID-19 Relief for Student Loan Borrowers


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