U.S. student loan repayments suspended for 6 months, with many exceptions – Quartz
Amid all the other coronavirus issues, those with student loans fear making payments in tough economic times. Last week in the United States, the CARES Act was enacted, which offers relief to some borrowers, but not all. And the exceptions might surprise you.
The non-profit association Help for student loan borrowers estimates that about nine million people in the United States have at least one student loan that does not qualify for relief under the $ 2.2 trillion stimulus package. In total, American graduates owe $ 175 billion in federal trade-guaranteed loans and $ 128 billion in private debt.
Payments are due and interest will accrue on it all despite the CARES Act, says John Brooks, a professor at Georgetown University Law Center who specializes in student loan law. He tells Quartz that these gaps in the relief are very problematic. “Forcing changes in the terms of private loans is difficult because they are outside the legal apparatus that applies to federal loans. But the federal government could do more for federal loans held by commercial lenders, ”says Brooks.
Funds loaned through government programs could arguably be more protected than private debt because they were offered under the aegis of the authorities, and certain conditions, such as the interest rates applicable to them, are mandated by the State.
It’s not like no one remembers these borrowers exist. It’s just that not everyone who made CARES really cared, apparently. The stimulus “leaves a lot of people out in the cold through no fault of their own,” says Remington A. Gregg, civil justice and consumer rights lawyer at Public citizen, a Washington, DC nonprofit that “stands up for the public interest” and advocates for a more comprehensive recovery.
There seems to be “no rhyme or reason” for the false distinctions between the various borrowers whose loans are still governed by the Higher Education Act but are not backed by the federal government, he told Quartz. Gregg and other consumer advocates “have pushed very hard” for broader relief and going forward, he said, Public Citizen will prioritize advocating for the many who fall through the cracks in CARES.
But for now, here’s the deal on whether you qualify for relief.
The main relief offered by the new stimulus is suspending student loan payments and accrued interest from March 13 to September 2020. But it does not apply to private loans held by banks or certain federal loans based on “the old banking system,As Forbes so cavalierly put it.
This old system isn’t really that old, in fact, and borrowers might rightly get the impression that these were, well, federal education loans, given that it’s called the Federal Family Education Loan Program (FFEL).
FFEL was started in 1966. Banks loaned school money to borrowers at fixed interest rates mandated by the federal authorities, and the offers were presented under the umbrella of Federal Educational Debt. Indeed, the government even subsidized some of these loans, paying interest while the students were still in school. The program was in place until 2010, and more than 66 million Americans trusted it.
However, CARES ‘glaring exception means that whether you owe money on a subsidized or unsubsidized Stafford loan, a PLUS loan that paid tuition (rather than tuition), or consolidated several debts under. FFEL, you are always hooked for payments, and interest accumulates daily.
Since 2010, federal education debt has been managed directly by the Department of Education with funds guaranteed by the US Treasury. That’s good news for young people, but it doesn’t do much for those who have borrowed before and are still paying (like this reporter).
Another cruel irony of the CARES Act is that Perkins loans also do not qualify for relief. This program allowed higher education institutions to offer loans directly to needy students and was discontinued in 2017. As the government’s own the student aid site explains, they were “low interest federal student loans for undergraduate and graduate students with exceptional financial needs”.
So the students who need help the most will not get it in this time of economic crisis. (The Education Department acknowledged Quartz’s request for comment, but has yet to respond to questions about the CARES Act and its impact on borrowers.)
What’s the deal for me?
Adam Minsky, a Boston-based lawyer whose practice aims to help borrowers navigate America’s complicated student loan system, laments the shortcomings of the CARES Act, and offers practical advice on where you stand and what to do if you fall between the cracks.
If you are unsure whether your debt is public or private or both, one way to check is to activate Studentaid.gov. Private loans will not be listed. Minsky, who has negotiated with his fair share of lenders, suggests borrowers who owe banks contact lenders directly because they “may also offer temporary relief.”
Brooks, a professor at Georgetown Law School, also suggests that all borrowers who are not currently participating in income-based repayment programs and who have been economically affected by the pandemic should “definitely register for these. now”. These loan programs calculate payments based on last year’s tax returns, but you can request to use your current income instead if it has decreased.
It is important to note, however, that at this point, lenders are still trying to figure out the implementation of the CARES Act, and there have been confusing messages coming from them. Prior to the adoption of CARES, borrowers were informed on the basis of advance relief proposals that interest accrued before March 13 would be capitalized while payments were suspended, and that a wider range of loans would be covered. It now appears that the relief applies to a smaller category of borrowers than previously thought, but the issue of capitalization of interest is still open.
Mysteries abound. What will happen to people who have signed up for automatic payments but whose bills do not fall due in the next six months? Should he suspend the payment himself? At the moment, interest continues to accumulate on many lender websites for all loans, it seems. What about the claim that involuntary collections, like wage garnishment, will be stopped?
Gregg of Public Citizen, a lawyer whose job it is to understand the law, is unsure of the answers and suspects that some of them may not be there. Regarding unintentional collections, for example, he has yet to find a definition of this term in the US code. This makes it difficult to fight an attempt to collect a payment that should have been suspended.
Each borrower must be vigilant about their own loan situations, many of which are extremely complicated, says the consumer law lawyer. “At the best of times, it’s difficult to navigate the system,” says Gregg. Add to that the fact that everything the CARES Law touches is in a state of flux and it’s basically chaos. “The agencies are building the plane they are flying in right now.”
Crisis that worsens the crisis
In total, U.S. student borrowers owed $ 1.6 trillion in March 2019, according to the Federal Reserve Board of Governors. NerdWallet’s 2018 survey showed that the average amount of school debt owed by housekeeping was $ 47,671.
Experts agree that the current situation only underscores what was already an unsustainable school debt situation, the crisis that existed before all this. Gregg calls school debt “an albatross” that has hampered an entire generation, making it difficult for graduates to pursue the American dream of owning a home, or even starting a family. He believes this burden will only be exacerbated by the pandemic.
The latest economic crisis has caused many Americans to return to school because of unemployment or in the hope of improving their lot. After graduation, jobs were hard to find and debt piled up. Gregg explains that at this point, the vast majority of defaults are not on astronomical loans offered to graduates of professional programs like law or medicine, but loans under $ 10,000 to borrowers who must decide. month after month if they have to eat, take the car. payments or pay off their student debts.
Gregg suspects that many Americans who resist the notion of student loan cancellation, an idea launched by Massachusetts Senator Elizabeth Warren when she was a Democratic presidential candidate, do not understand that it is not meant to be a boon for surgeons earning six-figure salaries, say. On the contrary, the cancellation would help alleviate the many Americans who were struggling before the Great Recession, after graduation, and to date, many of whom will find it hardest to weather the economic collapse caused by the current pandemic. .
Brooks hopes the national emergency will bring about the changes he has long advocated, policy changes that would include the complete elimination of interest charges and mandatory income-tested repayments. “I hope it could be a step in that direction,” he says of the current relief program. “I’m pretty convinced that the coronavirus crisis will bring about some pretty significant changes throughout our political and financial system, but it’s a fool’s game to try to predict exactly!”
In the short term, there is no doubt that some relief for some borrowers is better than none at all. However, it is important to recognize that there are problems ahead. On the one hand, Gregg and Brooks both note that rapidly rising unemployment rates will undoubtedly skyrocket by September, meaning borrowers will need a lot more help.
On the other hand, there is the question of how the Americans got here to begin with. Gregg has already spent sleepless nights thinking about the latest financial crisis and its effects on borrowers, many of whom fell prey to unscrupulous lenders and schools. Today educational institutions have $ 14 billion available through the CARES Act, and no oversight mechanism exists to ensure that this money is spent appropriately.
“I hope that when the history of this era is written, we won’t find ourselves saying that the money went to big business,” said Gregg.