COVID-19 has caused changes in every corner of daily life, and that’s definitely true for college and graduate students. You may be wondering — how does COVID-19 affect my student loans? What kind of federal relief is there for students during COVID?

How does COVID-19 affect my student loans?

Here, we share the key policy developments which could affect your student loans.

President Biden extended the ‘pause’ on federal loans (Jan 2021)

On President Biden’s first day in office, he took immediate action on student loans, extending the “pause” on payments and interest accrual for federal student loans until September 2021. While this action only applies to federal loans, not private loans, it’s an enormous source of relief for students and families.

The second stimulus package (Dec 2020) and your student loans

The second stimulus plan has mixed news for students and borrowers.

Signed by President Trump shortly before New Year’s Day, the bill provides $22.7B in aid directly to colleges and universities. The new package has a few key benefits for college students and their schools:

Expanded funding for grant programs at nonprofit schools. With $20B earmarked for nonprofit schools, your school is likely to have more funds in programs like emergency grants and relief for students whose income or situation has been affected by COVID.  

Broader Pell grant eligibility. The new package also expands Pell eligibility in a few ways: 1) extends eligibility window for students who were previously enrolled in under performing for-profit schools like Corinthian; 2) lifts a ban on Pell grants for prison inmates; and 3) simplifies the calculation for who gets Pell and how much, which reportedly means that an additional 500,000 students will be eligible for a Pell grant and that about 1.5 million Pell grantees will see an increase in their grant total. It is a little unclear when this will go into effect.  We suggest you reach out to your financial aid advisor, but he/she probably won’t know all the details for a few weeks.

A simpler FAFSA! The new package directs that the FAFSA should be reduced from its current 100+ questions to something in range of 35 questions. 

No stimulus checks for dependents

Like the first stimulus package from March of 2020, the second bill does not provide any stimulus checks directly to students who are dependents on their parents’ tax returns. And, unfortunately, the new package does not appear to extend the ‘pause’ in federal loan payments or collections, which are currently set to expire on January 31, 2021. (However, President Biden extended the pause on his first day in office, so that it is now in effect until September 2021.)

The $2 trillion CARES Act directly impacts college students with loans

• The CARES Act, passed in March 2020, has these main benefits:
• Most federal loan borrowers are excused from making payments, originally for a six-month period that expired Sep 2020. This benefit was extended through January 31, 2021 based on an extension from the Department of Education.
• Interest is waived on all federal loans and loan collectors are prevented from garnishing wages, tax returns, and Social Security benefits to collect overdue payments
• Nothing in the relief package affects private student loans
• For the nerdy, you can read the entire text of the bill here
• For the rest of us, this Buzzfeed article does a nice job summarizing

What it means for you: If you have federal loans, the forbearance window (the period of time when the lender can’t legally enforce payments) could be an important opportunity to help you get through financial hardship from COVID-19.

Your school could be receiving extra aid as part of the March 2020 CARES Act

• As part of the CARES Act, $14 billion was allocated to individual colleges and universities
• According to Inside Higher Ed, the Department of Education released its list of schools and their funding allocation amounts in April 2020
• According to the bill, at least 50% of that aid must be given to students as emergency aid grants
• Here’s the full list of schools and corresponding aid amounts, which were determined by an enrollment formula

What it means for you: There could be a new pool of grants available for students at your college or university. Reach out to your financial aid office to see what kind of additional support you might be able to apply for.

In the March 2020 stimulus package, most college students didn’t get that $1,200 check

• While 90% of American adults were set to receive a check from the government in the spring of 2020, Americans aged 19-24 that can be counted a dependent on another person’s tax return were excluded from the bill 
• The bill provided a one-time payment of $1,200 per individual making less that $75,000 a year, and $500 per child under 17, but made it difficult for college-aged adults between the ages of 19-24
• This means that it doesn’t matter if you ARE claimed as a dependent, just that you CAN be claimed by a parent or guardian
• From CNBC: “A taxpayer is allowed to claim a full-time student between the ages of 19 and 24 as a dependent, so the parent will not get $500 for a college student, nor can the college student generally claim $1,200.”

What it means for you: College students were left out of the first stimulus payments, but that doesn’t mean any future stimulus would be set up the same way.

Here’s a good take on a reasonable question: Forbes asks, “Should You Really Stop Making Your Student Loan Payments?”

• As part of the CARES Act, anyone with a federal student loan has the ability to suspend loan payments. But should they?
• Forbes dug into this issue and made two salient points, we think:
  • First, payments are only being suspended, not made by the government. So, the same total amount owed will be waiting for you after the 6-month grace period
  • Second, since interest is being waived during this period, it’s a good time to make a dent in the principal amount owed, if you have the ability to keep making payments

What it means for you: Of course, if you are experiencing financial hardship during COVID-19, getting ride of a monthly bill with no consequences is a no brainer! However, it’s also a chance to get slightly ahead of the game, if you still have the cash flow to stick to the normal payment schedule.

Take a close look at what IS and what IS NOT included in the student loan stimulus

Towards the bottom of this piece by Forbes is a nice round up of what’s excluded from the CARES Act, as it pertains to student loans.

• Private student loans are NOT included in the CARES Act relief package. Any loan that you got from a private company is not covered by the CARES Act. In other words, on private loans, payments are expected to made on time and interest is set to accrue as usual. 
• Student loan forgiveness is NOT included in the CARES Act relief package. Despite a push by Senate Democrats to include $10,000 of loan forgiveness, no such amendment exists in the bill. 

What it means for you: Many students with loans have some mix of private loans in their package. Unfortunately, these loans were not included in the relief package from spring 2020. That being said, many private companies – including Funding U – are creating policies of their own to manage this worldwide crisis. If you are having trouble making your payments, do not hesitate to reach out.

An extra CARES Act benefit that you might get through an employer

• The CARES Act includes a new tax break for employers who help pay their employees’ student loan bills. Under the bill, a company could pay up to $5,250 of an employee’s student loan payments each year on a tax-free basis.

What it means for you: If you’re already working, definitely reach out to your HR person and find out if your company has a loan-payment benefit. If they don’t, you can always ask them to consider such a program, which could give them some tax benefits too!

No-cosigner student loans from Funding U

At Funding U, we make no-cosigner student loans directly to college students. We don’t look at your parents’ credit; we look at you, your academic progress, and your financial plan. Apply online.

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