For Individuals
April 7, 2021

Seven Common Misconceptions on CARES Act Student Loan Relief

Updated 8/24/22: Since this blog post was published, the Biden Administration extended the freeze on federal student loan payments for approximately 40M borrowers through December 31, 2022.

Even though the CARES Act student loan relief measures have been in effect for over a year now, many borrowers and employers still have questions about the details. And that’s no surprise—this is a complicated subject, so we’re breaking it down for you.

Read on to learn the truth about seven common myths and misconceptions of this student loan relief legislation.

Myth #1: The CARES Act included student loan forgiveness

The student loan relief provisions included in the CARES Act put a pause on payments and interest for all federally held loans. It did not offer any student loan forgiveness.

Once this relief period is over, all student loans that were on hold will resume as usual, with the same balance they had at the time of the last payment.

Myth #2: All student loans are included in the payment freeze and interest waiver

Unfortunately, this relief period does not cover all types of student loans. The pause on payments and interest only applies to federally held loans.

This means that relief coverage applies to some (but not all) federal loans, and does not apply to any private loans. Federal Direct loans and some FFEL, Perkins, and Parent PLUS loans are issued by the U.S. Department of Education and thus considered to be “federally held.” If a borrower took out loans after 2010, they’re probably considered federally held.

If borrowers are unsure about what kind of loan they have, we are here to help. Through the Summer app, they can sync their loans, determine if their loans are eligible for the payment freeze, and get the info they need to navigate the relief extension.

Myth #3: Every borrower has either all federal loans or all private loans, so they’re either totally covered by the relief legislation or not at all.

Many borrowers hold some combination of federal and private loans. To put it in perspective, about 82% of Summer users with private student loans also have federal student loans.

It is not uncommon for borrowers to have some of their loans covered by the relief, but still be on the hook for monthly payments on other loans.

Myth #4: The payment pause means that payments are not currently being accepted.

Although they do not have to follow the same monthly payment schedule as usual, borrowers can still put money toward their loans if they so choose. In fact, depending on their financial situation and repayment plan, making payments now may work in their favor.

If your employer chooses to offer tax-free contributions to your employees’ student loans, this extra funding could actually go farther during this time. Because interest rates are currently frozen at 0%, any payment made during the relief period will go directly towards their balance, rather than paying off any interest that has accumulated that month.

Myth #5: Borrowers with private loans have no relief options during this time.

While the millions of borrowers with private loans have, of course, not been exempt from the wide-reaching financial impacts of the last year, it is true that private loans are not included in the relief.

The good news is that private loan borrowers may still have some options to lower their payments. These options can range from refinancing, to working with their lender to settle on a more sustainable repayment plan, to enrolling in income-driven repayment on their federal loans.

And they don’t have to do this alone—Summer can help private loan borrowers navigate this process with personalized guidance through every step of the way.

Myth #6: Most borrowers are covered under this relief legislation, so there’s really no reason for employers to offer student loan support right now.

Even though the relief period has given many borrowers a break from their loans, it’s not accurate to say that most are covered by the relief.

In fact, across our user base, only 76% of Summer users’ loans are fully covered! That leaves 24% who still have at least one student loan that requires monthly payments right now.

In contrast, employer-sponsored student loan assistance offers more comprehensive support that all of your employees with loans can benefit from, regardless of whether or not they qualify for the relief legislation.

By supporting your employees in their student loan journey—during the relief period and beyond—you’re also helping them accelerate their repayment timeline, get on track for greater financial stability, and reduce stress that could lead to mental health difficulties.

Myth #7: Once the relief period is over, all borrowers will have to pay the same amount each month that they paid before the CARES Act, even if they have seen their incomes change.

This relief was enacted for an important reason: During the pandemic, many borrowers have seen significant changes to their income, budget, and overall financial stability. But this period also gives borrowers with federally held loans the opportunity to take a step back, reassess their repayment plan, and adapt if they need to.

Even though the relief period is scheduled to end on September 30, many borrowers may have options to lower their payments or switch to a new repayment plan. Many may even have the option to get on a path toward loan forgiveness starting today.

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