ACOFP Blog

Congress is currently negotiating a new COVID-19 package to stimulate the economy and provide financial relief for individuals and families. For many members of Congress, continuing to provide student loan relief is a major priority although it currently is unclear how this important issue will be addressed in this legislation.

The Coronavirus Aid, Relief, Economic Security Act (CARES Act) provides broad relief for student loan borrowers by suspending payment obligations and interest accrual for most federal student loans from March 13, 2020, through September 30, 2020. Student loan borrowers will be required to restart their payments and interest will accrue beginning on October 1, 2020. There currently are competing proposals on additional student loan relief between Democrats and Republicans.

The House Democrat proposal (Heroes Act) would extend and expand the CARES Act provisions while the Senate Republican proposal (HEALS Act) makes changes intended to simplify the ways individuals repay their student loans and limits student loan relief to financially struggling borrowers. An overview of the major student loan provisions in each bill is provided below.

The Heroes Act

• Extends the suspension of payments and interest accrual through September 2021 and would expand such relief to Federal Family Education Loans that are held by commercial entities and Perkins loans, which currently are not eligible for relief under the CARES Act.
  
• Provides up to $10,000 in student loan forgiveness. In order to qualify for the forgiveness, one of the below criteria must have been met on March 12, 2020:
  • The borrower had an income-based repayment plan at zero dollars per month;
  • The borrower’s loan was in default;
  • The borrower was behind on loan payments by 90 days; or
  • The loan was in deferment or forbearance.
    
• Allows certain payments on consolidated federal loans to count toward the Public Service Loan Forgiveness Program, which forgives student loans if the borrower is working in a qualified public sector job and makes 120 monthly payments on the loan.

The HEALS Act

• Simplifies the loan repayment options available to borrowers. For borrowers entering their repayment period on or after October 1, 2020, they would have two options:
  • A standard repayment plan with a fixed amount over ten years; or
  • An income determined plan under which (1) borrowers would be required to pay 10 percent of their discretionary income on the loan; or (2) borrowers that make less than 150 percent of the poverty line (currently $19,140 for an individual) would not have to make payments.
    
• For income determined repayment plans, borrowers with undergraduate loans who have made payments for 20 years would have their loans forgiven. Graduate student borrowers would have their loans forgiven in 25 years.

Administration Action on Student Loan Relief

While Congress has not agreed on a path forward, the White House has taken steps to address student loan relief. On August 8, 2020, President Trump signed an Executive Order that is intended to extend the suspended payments and interest accrual through December 31, 2020 for federal student loans. Private student loan relief is not included in the Executive Order.

It is unclear whether the President has the authority to unilaterally extend the student loan forgiveness period. Although the Executive Order would have to be challenged in court to stop the loan forgiveness, and given the popularity of the student loan relief, it is possible no one will challenge the order.

ACOFP will continue to monitor federal action on student loans.