Tax Tips: What does the coronavirus mean for students and student loans?

Last month, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act into law. The $2.2 trillion economic stimulus package offers assistance to millions of Americans currently affected by the coronavirus pandemic.

The CARES Act includes direct aid for most Americans through stimulus checks, expanded unemployment coverage, adjusted retirement account rules, and…temporary federal student loan changes.

Let’s get into the details of how students and student loan holders can get help through this act and other opportunities.

How are college students getting help?

Stimulus checks

Thanks to the CARES Act, taxpayers across the country are getting assistance through stimulus checks, many college students included.

In order to get a check, you can’t be a dependent for tax purposes. Generally, you’re likely to be considered a dependent for tax purposes if you are either:

• under age 24 and a student, and did not provide more than half of your own support, or

• if your income was less than $4,200 in 2019 and someone else provided more than half of your support

If you’re not a dependent for tax purposes, you should be getting a check soon from the government.

Relief fund

More than $6 billion dollars are currently being distributed to colleges and universities through the Higher Education Emergency Relief Fund. This money will provide emergency financial aid grants to students whose education is now affected by the coronavirus outbreak because of pressing needs.

These needs could include:

• Food

• Housing

• Healthcare

• Childcare

• Technology

• Course materials

The amount of funds each school will see is determined by several factors, such as the number of full-time students and the percentage of Pell-eligible students). It will be up to colleges and universities to determine which students receive these cash grants.

Check with your school’s financial aid office to see what its process will be for distributing these funds.

Unemployment benefits

Many Americans, including students, were laid off because of the coronavirus. Did you work either part-time or full-time while you were a student, and were laid off? Are you a gig worker whose income is decreasing because of the pandemic? You may be able to receive unemployment benefits.

Because of the coronavirus, the government is also allowing for an additional $600 of Federal Pandemic Unemployment Compensation every week, for up to 39 weeks.

Contact your state unemployment office to see if you qualify for unemployment benefits.

Work-study payments

Do you have a federal work-study job that you can no longer do because your school or employer closed? You still may be entitled to multiple payments or a one-time grant for the remaining period you were set to work.

Check with your college to find out more.

How is the CARES Act impacting student loans?

The CARES Act has allocated billions to education, but despite giving federal student loan holders a break, it doesn’t include loan forgiveness yet.

Here are the changes you can expect as a federal student loan holder:

Temporary suspension of payments

The suspension of payments is automatic for federal student loans, so there’s nothing you need to do. Automatic payment suspensions will be in place starting March 13, 2020, through September 30, 2020. Check your account online to make sure the suspension is in place.

If you made payments toward your loan after March 13, 2020, you might be able to get a refund — contact your lender for more details.

When it comes to your credit score and lender reporting, you should know that if your account is currently in good standing, loan companies will continue to report it as so. However, this suspension of payments will not wipe the slate clean if your account was past due or delinquent.

Temporary suspension on involuntary collections

Are you behind on your federal student loans? Under the CARES Act, all involuntary collections of student loan debt are suspended until September 30, 2020. This includes Social Security garnishment, wage garnishment, and seizure of your tax refund. If you’re participating in a loan rehabilitation program, you don’t have to continue payments, and will receive credit for the next six months (starting in March).

Temporary reduction of interest rate to 0%

The interest rate on all federal student loans is reduced to 0% until September 30, 2020. This adjustment will be applied to all federally held student loans, regardless of their status.

Do ALL federal student loans qualify for relief under the CARES Act?

Most student loan borrowers will see an automatic pause on payments and involuntary collections. However, the CARES Act does exclude commercially held Federal Family Education Loans (FFEL) and some Perkins Loans.

What about private student loans and the CARES Act?

It’s important to remember that the above changes are only in place for federal student loans. The CARES Act rules for student loans do not apply to private loans; it’s up to each independent lender to implement policies and assist their customers during this time.

Most are providing relief (such as temporarily suspending payments) on a case-by-case basis, so contact your lender directly for the most accurate info.

Though the CARES Act provides relief for most student loan borrowers, it’s not something that you can bank on and forget about. The best thing you can do right now is to stay informed and contact your loan provider with any questions regarding your account.

Also, if you haven’t filed your taxes yet this year, make sure you deduct up to the first $2,500 of student loan interest you paid in 2019. Every little bit helps. An H&R Block tax pro can answer any tax-related questions you have about your student loan.