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The CARES Act and Your Student Loans

The CARES Act and Your Student Loans


If you have a student loan, be aware of how the U.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act of 2021 (CAA) affect that loan.

 

1. Employer Educational Assistance Extended to Student Loans

If your local church, as your employer, has an IRS-qualified education assistance program and gives you financial assistance to pay your student loans, up to $5,250 of that educational assistance may qualify to be excluded from your wages. Normally an exclusion for educational assistance does not apply to existing student loans, however, the CARES Act has expanded educational assistance to include the payment of student loans paid after March 27, 2020, and before January 1, 2021. The Consolidated Appropriations Act of 2021 (CAA) has further extended the time frame to include payments made before January 1, 2026.

 

This is great news and significant for U.S. pastors who are participating in either of the COMPASS Initiative’s programs: the COMPASS Journey or the COMPASS Quest. The grant associated with your program is usually considered taxable income for you, if you use it for debt reduction. However, under the expanded educational assistance of the CARES Act and the CAA, up to $5,250 will be exempt if used for student loan payments paid after March 27, 2020 and before January 1, 2026.

 

See the official IRS publications for detailed information:

Sample templates for establishing an Educational Assistance Program:

Sample templates for establishing a Ministerial Excellence Fund for COMPASS grants:

2. Federal Student Loan Forbearance Extended At Least Through January 31, 2022

All student loans owned by the U.S. Department of Education have had their interest rates set to 0% from March 13, 2020 to January 31, 2022. These include Federal Direct Loans (Direct Subsidized, Direct Unsubsidized, Direct PLUS for graduate students and for parents, and Direct Consolidation), Federal Family Education Loans, and Federal Perkins Loans.

 

All loan repayments will begin again in February 2022. Plan now for including those payments in your budget. The Federal Student Aid office also has an online "Loan Simulator" that can help you explore your repayment plan options including whether debt consolidation would be beneficial. Check it out here.

 

For more information and for answers to frequently asked questions about Income-Driven Repayment, IDR Forgiveness, and Loans in Default, see the following U.S. Department of Education publications:

 

Disclaimer: The material contained herein is of a general nature to inform. It is not offered as specific legal or tax advice. Each person, local church board, and district should evaluate their own unique situation in consultation with their local legal and tax advisors.