The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2 Trillion COVID-19 stimulus package. Let’s go over how the CARES Act helps physicians and other healthcare professionals with their student loans because they provide benefits.
How the CARES Act helps doctors with student loans
Unfortunately, the CARES Act only benefits student loan borrowers with Direct federal student loans. These are the same type of loans that help doctors qualify for Public Service Loan Forgiveness (PSLF). If your statement doesn’t lead you to believe that they are “Direct” loans, those loans are not affected by the CARES Act.
For Direct Federal Student Loans, The CARES ACT provides:
- A 6-month forbearance that stops payments and pauses interest. This forbearance started in April and continues through September 30th, 2020.
- Interest will not accrue or get capitalized (added to the principal balance) during this forbearance period.
- The change was automatic, and your monthly payment will reflect a zero-dollar monthly payment.
- These zero-dollar monthly payments count towards forgiveness for PSLF and long-term forgiveness provided by income-driven repayment (IDR) plans.
- There are other specific benefits for people who are falling behind on payments.
- Employer payments toward your student loans will not be taxable to you, up to $5,250.
What should you do about student loan payments?
If you are pursuing PSLF:
All Doctors and healthcare professionals should be ecstatic about how the CARES Act helps them with PSLF progression. During this forbearance period, no payments are required, and automatic withdrawals were canceled.
Since these zero-dollar payments count towards the 120 “qualifying payments” for PSLF, you have no reason to make a payment. In a sense, the CARES Act aids in maximizing forgiveness. However, the proof is in the pudding. Make sure that you are filling out the PSLF Employment Certification form each year, and double-check that your PSLF counter is accurate.
You shouldn’t need to do anything to take advantage of this automatic forbearance period. However, there have been several people that reported they were still required to make payments.
While loan servicers are known to make countless mistakes, take these reported cases with a grain of salt. The borrowers could have older FFEL loans or private student loans. Those loans don’t qualify for relief under the CARES Act.
As an extra precaution, log into your loan servicer’s website and make sure the payments display a zero dollar monthly payment, and that interest isn’t accruing.
If you are pursuing long-term forgiveness, through an income-driven repayment (IDR) plan:
Income-driven repayment options such as Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) have built-in forgiveness provisions.
Forgiveness through this manner can take 20 to 25 years, depending on the terms of your repayment plan. If you seek forgiveness through this method, you should take full advantage of the CARES Act, as the zero-dollar monthly repayment will count towards forgiveness.
As noted earlier, forbearance relief offered by the CARES Act should have taken effect automatically. However, you should log into your loan servicer account to make sure your monthly payments display a zero dollar monthly payment and verify that no interest is accruing.
If you are aggressively paying off your student loans
Unless you’re aggressively paying down your student debt and have 3 to 6 months worth of cash on hand, I would take advantage of this forbearance period. Use this time to direct your student loan payments to your Emergency Fund and 5 Year Goals fund.
Given everything that’s going on in the economy, the CARES Act and this emergency forbearance period allows you to take a step back and evaluate your financial situation.
If you have enough money to weather another storm and don’t feel like your job is at risk, continue making your student loan payments.
The interest rate relief and relief from interest accrual will be your best benefit. If you continue making payments like you did before the CARES Act, you’ll likely pay off your student loans that much quicker.
If you have Federal Family Education Loans (FFEL)
For most situations, FFEL loans are excluded from the CARES Act and not eligible for the forbearance and interest waiver. However, there are some exceptions, and you would need to contact your loan servicer for guidance.
Doctors and medical professionals should note that FFEL loans are not eligible for forgiveness through PSLF. However, they do qualify for the long-term forgiveness provision of income-driven repayment plans, with IBR payments.
Should I perform a Direct Consolidation to be eligible for forbearance through the CARES Act?
A Direct Consolidation of your federal student loans would make you eligible for the CARES Act benefits. However, you should evaluate the pros and cons of doing so.
Performing a Direct Consolidation of your federal student loans would reset any forgiveness progression through PSLF or forgiveness through income-driven repayment plans. You’re essentially consolidating all your old loans into one new loan.
What about private student loans?
The CARES Act, for the most part, only affects federal student loans. It does nothing for private student loans. If you need financial relief, contact your private student loan servicer for assistance. Most national private student loan companies are offering some variation of a short-term forbearance. Just don’t expect a pause on the interest.
For most situations, interest will continue to accrue while in forbearance. Interest might even get capitalized (added back to the principal balance), and new interest will accrue on that higher balance. This only keeps you in your student debt longer.
If you can afford to continue to make payments on your private student loans, you should. If you have variable interest rates or a high-interest rate, it might make sense to shop for better rates. If you need help, we have a network of refinancing companies willing to help. We match borrowers to lenders based on their creditworthiness.
If your student debt portfolio consists of both Direct federal loans and private student loans, take advantage of this forbearance period to pay down your private loans. Take the money that you would have paid on your federal student loans and direct them to your private loans.
It’s important to note that there are many articles online that boast tips and tricks to deal with student loans. Just keep in mind that there is no “silver bullet” or “set it and forget” approach to managing student loans. Student loans require planning and oversight.
If you’d like to learn more about creating your student loan strategy, I invite you to register for my Student Loan Destroyer Masterclass webinar. It’s free to join, and we’ve received positive feedback.
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1. U.S. Department of Education, The CARES Act – https://home.treasury.gov/policy-issues/cares
2. Federal Student Aid, https://studentaid.gov/announcements-events/coronavirus