The COVID-19 pandemic has caused dramatic shifts in our economy and our way of life. Many Americans are feeling the strain on their finances, on top of the mental and emotional challenges of sheltering at home.

To an extent, the federal government has made efforts to address this financial uncertainty. The Coronavirus Aid, Relief and Economic Security (CARES) Act, for example, offers temporary relief to student loan borrowers.

But not all borrowers were included in this relief effort, and those who were included are receiving bad advice. This includes being encouraged to throw money at their student loan debt — even when there are more pressing financial needs that need to be addressed.

There’s also plenty of confusion swirling around about how payments — or non-payments —  will affect student loan forgiveness.

Here’s how the CARES Act impacts loan forgiveness and what to expect going forward.

How does the CARES Act affect student loan borrowers?

The CARES Act directly impacts most federal student loan borrowers. This landmark bill benefits borrowers with federal loans owned by the Department of Education. Borrowers with private loans, Federal Family Education Loans (FFEL) or Health Education Assistance Loan (HEAL) program loans owned by commercial lenders, don’t benefit from the bill.

The CARES Act temporarily provides financial relief by:

  1. Freezing federal student loan interest rates at 0%.
  2. Automatically suspending loan payments.


Both of these provisions are effective as of March 13, 2020 and are set to continue through September 30, 2020. Although, there is discussion for extending these relief measures.

What does this mean for borrowers seeking loan forgiveness?

There was some initial concern related to how the automatic forbearance period would affect borrowers on track for loan forgiveness programs. Now, it’s made clear that borrowers will receive qualifying payment credit during this period.

The Consumer Financial Protection Bureau states that “suspended payments will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met.”

So, even though you’re no longer required to make a monthly payment during the forbearance period, you’ll continue to receive credit toward loan forgiveness as if you were making a payment.

This applies whether you’re pursuing Public Service Loan Forgiveness (PSLF) or forgiveness through an income-driven repayment (IDR) plan.

For many borrowers, that translates to an additional 6-7 months’ worth of loan forgiveness payments without a single dollar leaving their bank account.

Don’t make federal loan payments right now

Although some financial experts are pushing for borrowers to take advantage of the 0% interest rate freeze, there’s no reason to make a payment if you’re pursuing loan forgiveness.

And even if you aren’t aiming for loan forgiveness, there are better uses of your money right now, considering we’re likely headed toward a recession.

Here’s the advice I’m giving my Student Loan Planner clients on how to use their freed-up student loan payment:

  1. Pay for immediate bills. If you’ve lost income, use your usual student loan payment to keep afloat on your mortgage, utilities and other bills. These should be your priority.
  2. Build your emergency fund. I recommend having at least one-year’s worth of expenses in your emergency fund for worst-case scenarios.
  3. Max out your retirement contributions. Consider increasing your retirement contributions before worrying about paying off student loan debt right now. You’ll have the added benefit of lowering your adjusted gross income (AGI) come tax season.
  4. Set aside additional money in a non-retirement savings account. If you still have undesignated funds, I recommend putting at least $100 a month into a taxable savings account for the time-being before even thinking about making extra payments on your student loans.

Even if you’ve made it to this point of the coronavirus pandemic with your job intact, there’s no guarantee that you won’t be part of a strategic layoff in the future.

Employers from all industries are feeling the economic strain. And some are even realizing their staff may be better off on unemployment right now than struggling to make ends meet while remaining on a limited payroll.

Because of this, I encourage you to ignore the traditional anti-debt movement that tells you to pay down as much debt as possible. This way of thinking doesn’t make sense during a global health and financial crisis.

If you deplete all of your funds for the sake of 0% interest, you could end up in a really unfortunate financial situation if this pandemic continues to negatively affect the economy. But if you’ve placed your freed-up student loan payment in various banking or investment platforms, you’ll have access to those funds whenever needed.

At minimum, they’ll earn you interest, and you can make a large payment once the economy is back on track.

Your loans will still be there when this is over

Even though there are talks about extending these waivers and other potential coronavirus-related loan forgiveness plans, we will eventually return to normal. Payments and interest for your federal student loans will resume.

So, this pandemic shouldn’t change your long-term repayment strategy.

If you were already on track for loan forgiveness, then take advantage of this temporary reprieve from making payments so you’re prepared to get back on payments as soon as the CARES Act provisions expire.