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CARES Act Summaries – Student Loans

March 31, 2020
Client Alert

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The Act provides temporary relief for student loan borrowers with regard to federal student loans made under parts D (Federal Direct) and B (HBCUs) of the Higher Education Act. The Act:

  • Directs the Secretary of Education to suspend all payments due through Sept. 30, 2020.
  • Bars the accrual of interest during this suspension.
  • Directs the Secretary to deem as paid any payment not made as a result of this suspension for the purpose of any loan forgiveness or rehabilitation program for which the borrower would have otherwise qualified.
  • Directs the Secretary to ensure that, for the purpose of credit reporting, any payment that was not made in light of this suspension be reported as though it were timely paid in full.
  • Directs the Secretary to suspend all involutory collection activities related to a loan in suspension, including: (a) wage garnishment; (b) tax refund reduction; (c) reduction of certain other Federal benefit (like SSA payments); or (d) “any other involuntary collection activity.”
  • Directs the Secretary to notify borrowers within 15 days of the enactment of the Act of: (a) “actions taken in accordance with this section and ensure effective transition”; (b) the borrower’s option to continue making payments toward principal; and (c) the temporary nature of this relief.
  • Directs the Secretary, beginning Aug. 1, 2020, to carry out a program to provide at least six notices by “postal mail, telephone, or electronic communication” to borrowers indicating:

    (a) when the borrower’s normal payment obligation will resume; and (b) that the borrower has the option to enroll in income-driven repayment.

There are two other provisions that may be pertinent to student loan servicers:

  1. Adjustment of Subsidized Student Loan Usage Limitation. The Act amends the Higher Education Act – 20 U.S.C. § 1087a, et. seq. – to allow the Secretary to exclude from a student’s period of enrollment any “semester (or the equivalent)” that the student did not complete due to a “Qualifying Emergency” (defined as one of several coronavirus-related declarations). However, this section will only apply “if the Secretary is able to administer such policy in a manner that limits complexity and the burden on the student.” For last-semester students, who would otherwise have graduated in the Spring or Summer of 2020, this could delay required repayment.
  2. Cancelation of Certain Student Loan Obligations. The Act amends the Higher Education Act –20 U.S.C. § 1001, et. seq. – to allow the Secretary of Education to cancel a borrower’s obligations to repay the “entire portion” of certain loans “associated with a payment period for a recipient of such loan who withdraws from the institution of higher education during the payment period as a result of a qualifying emergency.”

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

Copyright © 2020 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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