The CARES Act, created due to the COVID-19 pandemic, addresses some educational related provisions designed to assist in student loan payments. These provisions include suspensions of payments and some canceling of debt. Here are some details:
Tax-excluded education payments by an employer temporarily include student loan repayments
- Education payments of up to $5,250 made by an employer are excluded from an employee’s gross income if made under an educational assistance program for the employee’s education.
- The CARES Act adds “eligible student loan repayments” made before January 1, 2021 to the definition of Education payments. The payments are still subject to the overall $5,250 per employee limit for all educational payments.
- Eligible student loan repayments are payments by the employer, whether paid to the employee or a lender, of principle or interest on student loans of the employee (but not of a spouse or dependent of the employee).
- To prevent a double benefit, student loan repayments for which the exclusion is allowable can’t be deducted as student loan interest.
- This provision applies to payments made after the date of enactment of the Act of March 27th and before January 1, 2021.
Suspension of Student Loan Payments until September 30th
- The CARES Act suspends principal and interest payments, on federal direct and Federal Family Education Loans (FFEL) until September 30th.
- Students with these types of loans would receive an automatic deferment; the federal student loan servicer will suspend all payments without any action from the borrower. No interest would accrue during this time period.
- This benefit also does not apply to private (non-federal) student loans.
Suspension of Student Loan payments does not jeopardize timely payment requirement of Public Service Loan Forgiveness (PSLF)
- Public Service Loan Forgiveness (PSLF) is available those working in public service, including all levels of government, states and municipalities, school districts, public hospitals, non-profit organizations which have enrolled in a 10-year repayment plan or an income-driven repayment plan.
- To have the student loan forgiven under the PSLF the borrower must make timely payments for 10 years. The Cares Act dictates that any deferment would not jeopardize the program. The Department of Education would consider the payments deferred as timely paid.
Cancelation of outstanding student debt related to Pandemic
- The CARES Act contains very narrow provisions to cancel outstanding student debt related to the Coronavirus pandemic. Cancellation would require students to withdraw from the courses due to the pandemic, and the portion of outstanding balance on their loans for only that semester would be waived.
Suspending involuntary collection
- The CARES Act requires the Department of Education to stop the collection of defaulted federally owned student loans including garnishment of wages, the offset of tax refunds.
- This provision does not apply to private student loans.
If you have questions on these provisions or other portions of the CARES Act, please contact John Csargo at email@example.com