How Relief Package Impacts College Aid, Loan Payments

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The $900 billion economic relief package passed by Congress includes several provisions that will benefit college students, their families and student loan borrowers, but it does not extend the moratorium on federal student loan payments beyond their Jan. 31, 2021 expiration date.

A six-month moratorium on federal student loan payments was included in the mega $2.3 trillion Coronavirus Aid, Relief and Economic Security Act passed in March, and extended by the White House twice,. Now it leaves the decision to extend it further to incoming President-Elect Joe Biden.

The latest economic relief legislation does extend another provision in the CARES Act to help student loan borrowers that otherwise would have expired at the end of this year: the provision allowing tax-exempt payments from employers to student loan borrowers up to a maximum $5,250.

Employees do not have to claim those payments as income on their tax returns and the payments are exempt from FICA payments from employees and employers through the end of 2025.

A Changing FAFSA

The new legislation also simplifies the FAFSA (Free Application for Federal Student Aid), which students and their families must file to qualify for college financial aid.

In addition, the legislation expands eligibility for both federal financial aid and for Pell grants. It also forgives more than $1 billion in federal loans held by historically Black colleges and universities.

When the new FAFSA takes effect in July 2023, it will have only 36 questions, down from 108 currently, will rename the expected family contribution (EFC) as the Student Aid Index and will increase the amount of income that is protected from consideration when awarding financial aid for students and their families.

This so-called income protection allowance increases by 20% for parents and 35% for most students, according to Mark Kantrowitz, a financial aid expert and publisher of PrivateStudentLoans.guru.

The new FAFSA, however, won't adjust the formula for the asset protection allowance that has been steadily declining, said Kantrowitz.

That formula is based on the difference between the average Social Security payment, which has been rising, and the moderate family living standard set by the Bureau of Labor Statistics, which has been stagnant. As a result of the narrower differential, the allowance has been falling.

Another potential problem with the new FAFSA might be an oversight or intentional move by Congress. The new calculation does not consider the number of children in a family attending college, according to Kantrowitz, who said he has read the new legislation.

If that omission is not corrected, students whose families have multiple children in college at the same time may qualify for less financial aid than they would currently.

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