Legal Alert

The CARES Act and Student Lending

by the Consumer Financial Services Group
March 27, 2020

The CARES Act contains several provisions related to higher education, some of which pertain to student loan relief, which are described below:

Campus-Based Aid Waivers (Section 3503)

The bill creates an exemption for institutions of higher education from matching requirements for various campus-based aid programs for academic years 2019-2020 and 2020-2021. Covered programs include Federal Supplemental Educational Opportunity Grants (SEOGs) for students deemed to have significant financial need and the Federal Work-Study Program. However, private for-profit institutions still must pay their share of work-study wages. Unused work-study funds can be applied to SEOGs, but SEOG funds cannot be applied to work-study programs.

Use of Supplemental Educational Opportunity Grants for Emergency Aid (Section 3504)

Institutions of higher education may use SEOG funds to assist undergraduate or graduate students for unexpected expenses and unmet financial need and waive the need calculation requirements under the Higher Education Act (HEA), up to the amount of the maximum federal Pell Grant for the applicable academic year.

Federal Work-Study During a Qualifying Emergency (Section 3505)

Students participating in the Federal Work-Study program can receive work-study wages even if they are unable to work.

Adjustment of Subsidized Loan Usage Limits (Section 3506)

If a study does not complete a semester/term due to a qualifying emergency, loans received for that semester will not count toward the total number of terms a student is eligible to receive a subsidized Stafford loan.

Exclusion from Federal Pell Grant Duration Limit (Section 3507)

If a student does not complete a semester/term due to a qualifying emergency, Pell Grants received for that semester will not count toward the total number of terms a student is eligible to receive such grants.

Institutional Refunds and Federal Student Loan Flexibility (Section 3508)

Requirements applicable to institutions of higher education regarding returning HEA Title IV student aid are waived with respect to students withdrawing as a result of a qualifying emergency. Similarly, students will not be required to return Pell Grants received. Moreover, the bill cancels loans for a given term/semester if a student had to withdraw due to a qualifying emergency.

Temporary Relief for Federal Student Loan Borrowers (Section 3513)

All payments on federally held student loans (not commercially held FFELP or private student loans) are suspended through September 30, 2020. During the suspension period, interest shall not accrue on federally held loans. For purposes of federal loan forgiveness and loan rehabilitation programs, payments will be treated as if they were made for each month during the suspension period.

Suspended payments must be reported to the credit bureaus as if they were made (thus not reported using forbearance codes). Involuntary collection of loans is suspended during the suspension period. The Secretary of Education is given a timeline to notify borrowers.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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