Covid-19 and Your Financial Health

The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is a $2.2 trillion economic stimulus bill passed by the 116th U.S. Congress and signed into law by President Donald Trump on March 27, 2020 in response to the economic fallout of the COVID-19 pandemic in the United States. The CARES Act – which authorized the “economic stimulus” payments earlier this year – contains a number of programs to “assist” those impacted by the pandemic. These include, but are not limited to, mortgage forbearance, federal student loan forbearance, IRA distributions, and income tax.

Federal Income Tax

The Economic Stimulus Payment is not in your taxable income on your Federal income tax return. You will not pay income tax on your Payment. It will not reduce your refund or increase the amount you owe when you file your 2020 Federal income tax return.

A Payment also will not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.

IRAs and Retirement Plans

Source: (https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers)

If you have taken money out of your IRA, 401(k), or other retirement plan due to the coronavirus, you should talk to your tax professional to understand whether it is taxable, and if so, when. Special rules apply if:

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Mortgage and Housing Assistance

Source: (https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/)

Protections for renters

If you are a tenant living in federally subsidized housing or are renting from an owner who has a federally or GSE-backed mortgage (FHA, VA, USDA, Fannie Mae, Freddie Mac), the CARES Act may provide for a suspension or moratorium on evictions.

Relief for all federally or GSE-backed mortgages

Source: (https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief/)

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and guidance from federal agencies and the GSEs, there are two protections for homeowners with federally or GSE-backed (Fannie Mae or Freddie Mac) or funded mortgages:

First, for federally or GSE-backed loans, your lender or loan servicer may not foreclose on you until at least December 31, 2020. Specifically, the CARES Act and the guidance from the GSEs, the FHA, the VA, and the USDA, prohibit lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale. This protection began on March 18, 2020, and extends through at least December 31, 2020.
Second, if you experience financial hardship due to the coronavirus pandemic, you have a right to request and obtain a forbearance for up to 180 days. You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days). You must contact your loan servicer to request this forbearance. There will be no additional fees, penalties or additional interest (beyond scheduled amounts) added to your account. You do not need to submit additional documentation to qualify other than your claim to have a pandemic-related financial hardship. Some federally backed mortgages have a December 31, 2020 deadline for requesting an initial forbearance. If you are facing financial hardships, you should ask for forbearance immediately, so you don’t lose that right.

Mortgage forbearance

Forbearance is when your mortgage servicer or lender allows you to pause (suspend) or reduce your mortgage payments for a limited period of time while you regain your financial footing.

The CARES Act provides many homeowners with the right to have all mortgage payments completely paused for a period of time.

Things you should know about mortgage forbearance during the COVID-19 national emergency

Forbearance doesn’t mean your payments are forgiven or erased. You are still required to repay any missed or reduced payments in the future, which in most cases may be repaid over time.
At the end of the forbearance, your servicer will contact you about how the missed payments will be repaid. There may be different programs available.
Make sure you understand how the forbearance will be repaid.
There can be different forbearance programs or options, depending on the type of your loan. For example, if you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, you won’t have to pay back the amount that was suspended all at once—unless you are able to do so.
If your income is restored before the end of your forbearance, reach out to your servicer and resume making payments as soon as you can so your future obligation is limited.

If you want to learn more read our guide to help you make the best decision based on your situation.

Moratoriums suspend or stop foreclosure

Foreclosure is when the lender takes back the property after the homeowner fails to make required payments on a mortgage.

Foreclosure processes differ by state. Under federal law, a servicer generally cannot start the state foreclosure process until your loan is more than 120 days past due. There can be exceptions depending on your forbearance or loss mitigation program.

Your servicer can work with you to avoid foreclosure. The Homeowner’s Guide to Success explains the federal law and what to do if you can’t pay your mortgage.

Student Loans

Source: (https://www.consumerfinance.gov/coronavirus/student-loans/)

Information for student loan borrowers

Principal and interest payments on federally-held student loans are automatically suspended through December 31, 2020.

The CARES Act suspended principal and interest payments on federally-held student loans through September 30, 2020, and an Executive Order directed the Department of Education to extend the suspension until December 31, 2020. The Department of Education extended other student loan benefits in the CARES Act until December 31, 2020.

Interest and monthly payments on federally-held loans are suspended through December 31, 2020.
You do not need to contact your student loan servicer or take any action on your federally-held student loans.
Make sure your servicer has up-to-date contact information and check your mail or email so you can receive any updates or information about your loans.
Suspended payments through December 31, 2020, will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met.

The student loan payment and interest suspension only applies to federal student loans held by the Department of Education. (See a list of federal student loan servicers.)

Some federal student loans under the Federal Family Education Loan (FFEL) Program are owned by commercial lenders, and some Perkins Loans are held by the institution or school you attended. Your FFEL lender or school may choose to suspend interest and payments on a voluntary basis, but they are not required by law to do so. You can contact your servicer to find out if these options are available to you.

What to do if you have federally-held student loans

You don't need to take any action. From March 13 through December 31, 2020, the interest rate is set to 0% and payments are suspended for student loans owned by the federal government. If you are financially able to make payments or continue making payments on your student loans, any payments you made or make after March 13 will be applied directly to principal. This will help you pay off your loans faster.

If you made a payment toward your federally-held student loans after March 13, you can request a refund from your student loan servicer.

If your federal student loan is already in default

The Department of Education has stopped the collection of defaulted federal student loans, including garnishment of wages and the offset of tax refunds and Social Security benefits, through December 31, 2020.

There is no additional action required from you for your federally-owned loans. For all other defaulted federal loans, contact your loan holder to find out about your options.

If you are rehabilitating a defaulted student loan, any missed payments through December 31, 2020, due to the coronavirus pandemic will not be considered a missed payment against your rehabilitation. (Learn more about rehabilitating a defaulted federal student loan.)

If you are working toward Public Service Loan Forgiveness

If you are working toward Public Service Loan Forgiveness (PSLF) you need to be aware of a few key items.

Only Direct Loans are eligible for PSLF. All Direct Loans are owned by the federal government.
For Direct Loans, even though payments are suspended, those suspended payments through December 31, 2020, will count as though you had made a payment toward loan forgiveness programs as long as the other the PSLF program requirements are met.
If you have other types of federal loans and are working in public service, you can consolidate most, if not all, of those loans into a Direct Consolidation Loan, which is eligible for PSLF if other program requirements are met. (Learn more about the PSLF program requirements.)

If someone contacted you to pay a fee to suspend your payments

This is a scam. The federal government will not ask for a fee to suspend your payments. If someone asks for money to process this information, it is a scam and you should report them to the FTC’s complaint assistant .

You do not need to pay someone to help with your student loans. You should also be aware of these warning signs to help you avoid student loan debt relief scams and how to get help.

What to do if your federal loan is held by commercial lenders or your school

Some loans under the Federal Family Education Loan (FFEL) Program are owned by commercial lenders, and some Perkins Loans are held by the institution or school you attended. FFEL lenders and schools may choose to offer interest and payment suspension benefits. If you have FFEL or Perkins loans, you should contact your student loan servicer for more information.

Perkins loan borrowers can request forbearance from their institution, not to exceed three months. This forbearance counts toward the cumulative three-year maximum allowed for Perkins loan forbearance. Additionally, you are not required to provide documentation to be considered for forbearance.

Federal student loan borrowers can consider income-driven repayment plans. Depending on your income or family size, your payments could be as low as $0. You may be able to enroll online without calling your servicer by visiting studentaid.gov . If you are already enrolled in an income-driven repayment plan but are experiencing a change in income, ask your servicer to recalculate your monthly payment.

If you are still required to make a payment that you can’t afford and you only need a temporary pause on payments, investigate whether deferment or forbearance is an option for you. Servicers can grant a 90-day forbearance to borrowers who are experiencing financial difficulties due to the pandemic. If you are still unable to make a payment after 90 days, you can request to renew this forbearance. Putting your loans into a deferment or forbearance will not result in negative credit reporting.

What to do if you have private student loans

Many private lenders have already implemented forbearance options that allow borrowers to postpone monthly payments, some for up to 90 days. Some private lenders also are waiving late fees and will not file negative reports to consumer reporting agencies. Some private lenders also offer their own reduced payment options. To find out what is available to you, contact your student loan servicer.

Are you a co-signer? Learn ways to protect yourself if you’ve co-signed a student loan.

FINAL WORD OF CAUTION

As you shop this holiday season, spend with caution. Make sure you save as much cash as possible to repay any debts that have been put into forbearance as part of the CARES Act.