The CARES Act: What does it mean for employers and employees?
In a nutshell: As an employer who offers Vault benefits, you can now contribute up to $5,250 tax-exempt dollars toward employees’ student debt balances.
What changed 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 January 31, 2021.
- 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.
Student loan payment rules are changing daily, and Vault is monitoring those changes.
The Department of Education has announced that it will allow anyone with federal student loans to enter into administrative forbearance for at least 60 days.
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 who are pursuing PSLF or whose payments are manageable will want to continue to make payments to make faster progress toward paying down their loans and completing forgiveness.
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:
The CARES Act and Employee Student Loans
In a nutshell: As of March 27th, federal student loan servicers are suspending loan payments and setting interest rates to 0% for six months.
What is the CARES Act?
On March 27, 2020 Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the Coronavirus pandemic. Among other things, this law provides relief for federal student loan borrowers. From March 13 to September 30, 2020 federal student loans will be placed in an automatic administrative forbearance (temporary suspension of payments) and a 0% interest period.
Which types of loans are affected by the CARES Act?
Federally-held student loans
Direct loans (defaulted and nondefaulted)
FFEL Program loans (defaulted and nondefaulted) not owned by commercial lenders, and
Federal Perkins loans not owned by the university you attended
Does this apply to private loans?
No. Private loans are not subject to the provisions of the CARES Act.
What is “administrative forbearance”?
Administrative forbearance is a temporary suspension of your payments to your federal loan servicer.
Do I have to apply to have my federal loan payments suspended?
No. Federal loans will be automatically suspended by federal loan servicers.
When does the 0% interest period begin?
The 0% interest period began on March 13, 2020 and runs through September 30, 2020. Federal loan servicers are working to implement the 0% interest and will apply this change retroactively to March 13.
Can I still make payments on my loans during this time?
Yes. If you choose to make payments to your loans between March 13 and September 30, 2020, your payment will first be applied to any interest accrued prior to March 13, then to principal.
What happens to my regular auto-debit payments?
Auto-debit payments to federally-held loans will be automatically suspended during this administrative forbearance period.
You can remain in administrative forbearance and make manual payments to your loan servicer, or if you wish to continue your auto-debit payments, you will need to contact your loan server to opt out of administrative forbearance and your auto-debit payments will resume.
What happens if I made a payment after the CARES Act was enacted?
Any payment to a federally-held loan that was processed after March 13 can be refunded to you. If you wish to receive a refund, you can contact your servicer to make that request.
Can I still make payments on my federal loans?
Yes. You can make payments in any amount to your federal loans during this administrative forbearance period. If you are able to do so, making these payments could help you to pay off your loans sooner, as your payments will be applied to principal, once all interest accrued prior to March 13 is paid.
What if I’m pursuing PSLF?
As long as you continue to meet all other PSLF requirements* during the administrative forbearance period from March 13-September 20, you will not have to make payments to your federal student loans. During this automatic payment suspension for federal loans, your $0 payments will count as qualifying payments towards your PSLF progress.
*PSLF requirements: You must have a Direct Loan, be on a qualifying repayment plan prior to March 13 and work full-time for a qualifying employer.
What if my loans are in default?
If you are trying to rehabilitate your loans, these suspended payments will count towards your rehabilitation.
Here are other resources you might want to check out: