On Friday, March 27, the House of Representatives approved an unprecedented $2 trillion bill entitled the Coronavirus Aid, Relief, and Economic Security Act, more commonly referred to by its acronym, the CARES Act. CARES puts in motion desperately needed financial relief for millions of Americans set back by the spread of COVID-19, the respiratory illness associated with the new coronavirus. President Trump signed it into law just a few hours later.

The sweeping legislation stands as the largest emergency aid package in US history, with provisions aimed at helping American workers, small businesses, and industries grappling with economic disruption. It also offers temporary help for those struggling to make their student loan payments.

For borrowers, the news comes after the US Department of Education offered guidance to help students struggling financially as a result of the pandemic. Just a week before the CARES Act became a reality, the department authorized an automatic suspension of student loan payments more than 31 days past due as of March 13. The department also announced that the interest rate on federal student loans would be automatically set to 0 percent for at least the next 60 days.

But as the pandemic escalates across all 50 states, it appears that social distancing is here to stay for a lot longer than a few weeks. Many people have lost their jobs, making it difficult for them to keep up with bills. Among them are roughly 45 million people in the nation who collectively owe $1.64 trillion in student loan debt.

The question many borrowers must ask themselves now is: "What does the CARES Act mean for my student loans?" To answer that, we're breaking down the stimulus package at a more granular level. Let's take a look.

How the CARES Act affects student loans

The bill includes provisions to help student loan borrowers weather the effects of coronavirus by suspending all involuntary collections of defaulted student loans, including wage garnishments, Social Security garnishments, and tax refund offsets.

Additionally, the bill automatically suspends payments on most federal student loans through September 30, 2020. After this period, the payment suspension and interest waiver will end, and borrowers will receive updates from their servicers about transitioning back into repayment.

Which student loans are eligible for the payment pause and interest waiver?

The stimulus applies to all student loans held at the federal level, including:

• Direct unsubsidized loans
• Direct subsidized loans
• Direct PLUS loans
• Direct consolidation loans
• Federal family education loans (FFEL) held by the federal government

It's essential to keep in mind that these loan benefits don't cover Perkins loans and commercially-held FFEL loans. While these are typically older loans—and programs that no longer exist—many borrowers are still repaying them and will not receive coverage. Private student loans also do not apply.

Are borrowers' monthly payments reduced?

Unfortunately, no. If you choose to pay your federal student loans during the six-month payment pause and interest waiver, your monthly payment will not change. Each student loan payment will pay off any previously accrued interest first and then chip away your principal balance, which is the amount originally borrowed. If you have no unpaid interest, payments will go solely toward your principal balance.

What the CARES Act means for private student loans

The temporary student loan relief applies to federal student loans only. The interest rate on your private student loans will not be reduced to 0 percent through September 30, 2020, and you will be required to continue with your regular payment schedules. Those who are struggling to pay off private student loans should contact their lenders and student loan servicers to discuss potential options and details.

However, some lenders are offering special financial relief programs to borrowers affected by COVID-19. For instance, Discover is currently directing students—and all other Discover members, for that matter—who have been impacted by COVID-19 to follow specific instructions regarding their student loans.

One borrower tweeted that Discover offered them two-month interest-free forbearance when they reached out about losing work hours during the pandemic. The company has also responded to borrowers on Twitter about its plans to offer extended payment and interest relief to qualified customers. Currently, the lender is encouraging student loan borrowers to contact them directly if they've been impacted by COVID-19 as each situation is unique.

The pandemic offers private borrowers one other opportunity to save. As a result of the economic downturn, interest rates have fallen considerably, making now a good time to refinance all significant debt, including private student loans. Money magazine has published an informative article on this subject.

Where do employers fit into all of this?

The CARES Act includes a temporary provision to expand the existing tax exclusion for employer-provided educational assistance to include employer-paid student loan benefits through the end of 2020.

In layman's terms, the tax break would allow employers to provide up to $5,250 toward an individual employee's education costs or their existing student loan debt; workers would not have to report that money as income. This may be particularly helpful for borrowers who have been financially burdened by the coronavirus pandemic and have non-federal loans, or loans that are not entirely federal.

Scott Thompson, CEO of Tuition.io, a benefits platform for employee student-loan contributions, backed this approach to benefits in a 2017 Hill op-ed, saying, that "it incentivizes American businesses to help solve the massive $1.4 trillion student loan problem, and it provides employers with a powerful new benefit to attract and retain talented young workers."

How does the bill impact loan forgiveness and loan rehabilitation programs?

All months of payment suspension will count as "qualifying payments" for borrowers working toward forgiveness under Public Service Loan Forgiveness (PSLF) or income-driven repayment.

The PSLF program requires 120 monthly student loan payments, although the payments do not have to be consecutive. If you are pursuing public service loan forgiveness and decide to skip payments through September 30, 2020, the skipped payments will count toward the required 120 monthly payments.

If you're enrolled in an income-driven repayment plan, these benefits also apply to you. If you pause payments, they will count toward the required 20 to 25 years of monthly payments for student loan forgiveness under income-driven repayment plans.

Does the CARES Act include any direct student loan forgiveness?

The bill only provides loan forgiveness for students that have or will withdraw from enrollment due to the coronavirus pandemic and only covers federal loans associated with the payment period in which they withdrew. Depending on the type of loan, the amount could range from about $2,000 to $10,000.

In the runup to approving the bill, student debt relief was among the points of contention as Republicans and Democrats debated over how to structure relief for the nation's tens of millions of student loan borrowers. Despite pressure from progressives to include $10,000 in federal loan forgiveness to all holders in the stimulus plan, these provisions were not incorporated into the final bill.

Can borrowers continue to pay their federal loans if they want to?

Yes, borrowers may choose to continue making payments to reduce the principal balance of their loans. Those who can afford to continue making payments should consider doing so.

What to do if your federal student loans are in default

The Department of Education has stopped the collection of defaulted federally owned student loans, including the garnishment of wages, the offset of tax refunds, and Social Security benefits. There is no additional action required from you for your federally owned loans. For other loans you may have, it's recommended that you contact your servicer to discuss your options.

How will this legislation impact colleges and universities?

In addition to student loan debt relief, the Senate agreed to a $30 billion Educational Stabilization Fund to support K-12 schools and higher education during the coronavirus emergency. 46 percent of these funds will be allocated to colleges and universities for a total of $13.953 billion.

The Department of Education will be tasked with calculating and implementing institutional awards, which will primarily be based on the number of full-time enrollment of Pell students and non-Pell students at a given institution.

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