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Student-loan borrowers struggling to make payments as the coronavirus cripples parts of the U.S. economy will get a temporary break under the $2.2 trillion stimulus bill the Senate unanimously approved late Wednesday.
The Coronavirus Aid, Relief and Economic Security (CARES) Act lets student-loan borrowers take a six month break from making payments on their federally-backed student loans. The House is expected to vote on the stimulus package on Friday, and it is widely expected to pass.
Until Sept. 30, borrowers will not be penalized for late payments. The CARES Act extends a two-month pause that President Donald Trump announced for student-loan payments last week. The federal stimulus bill will also hand out $1,200 checks to people under certain income limits, expand unemployment benefits, and provide relief to small businesses.
The temporary break on student-loan payments includes borrowers seeking to have their student loan debt forgiven through the Public Student Loan Forgiveness Program. That program allows borrowers who work in certain public or nonprofit sector jobs to have their federal student loan debt erased after making on-time payments for 10 years.
The CARES Act would allow them and other federal student loan borrowers to delay payments without facing an interest penalty. The zero-interest deferment option, if a student’s federal loan policy qualifies, will be automatically applied.
“Those people will just have to do what they’re normally doing,” said Travis Hornsby, founder of Student Loan Planner, a student loan repayment advisory group based in Saint Louis, Missouri. “Since many people unfortunately ignore their payment plans they just continue to ignore it but won’t have to pay interest [over the six month period].”
Also see: The best way to spend your $1,200 stimulus check, according to financial advisers
Borrowers aren’t off the hook for any portion of their student loan debt burden. Some were hopeful that Democratic lawmakers would be able to pass a provision to cancel $10,000 in student debt per borrower over the course of the coronavirus-related national emergency.
One important caveat to the bill: private student loan borrowers don’t get any relief at all from this bill, Hornsby said. The six-month break only applies to people with federally-backed loans. “That’s really unfortunate for people who converted their federal loan to private to pay back debt,” he added. “the rug got pulled out from under them.”
That includes approximately 6 million loans made under the Federal Family Education Loan program that are held by commercial lenders, according to Student Loan Planner’s calculations based on data from the Dept. of Education.
Allowing borrowers to delay loan payments “is like a Band-aid on a deep wound, the underlying situation remains unresolved,” said Andrew Housser, co-CEO of Freedom Financial Network, an online debt management company based in San Mateo, Calif.
Currently Americans collectively owe $1.5 trillion in outstanding student loan debt — that’s more than the total credit card debt as well as total auto debt, according to the New York Federal Reserve. 11.1% of total student debt is more than 90 days delinquent.
“Helping people mitigate the cycle of debt, especially those with crushing student debt, will help alleviate some of the pain of this sudden crisis, and importantly, will help people rebound once we have the crisis under control,” Housser said. “We don’t know when this will end, but we do know that when it does we need people to get back to work and start spending again in order to reinvigorate the economy.”
He added, “There is much more that should be done for student borrowers once this crisis is over, but this will help, no question.”
In addition to student-loan debt relief, the Senate agreed to create a $30.75 billion education stabilization fund, approximately 46% of which would be directed to colleges. $13 billion would go to primary and secondary school. Additionally the fund would provide grants to “local educational agencies that the State educational agency deems have been most significantly impacted by coronavirus,” the bill states.
