Student loans emerge as a potential flashpoint in negotiations

Republicans in the White House and Senate released their proposal of a stimulus package to help the country recover from the coronavirus-induced recession, and struggling student borrowers appear to have been left out.

Read more: How to repay student loans: the full breakdown

HEALS (Health, Economic Assistance Liability Liability Protection & Schools Act) does not extend the interest-free payment break on federal student loans or halt debt collection on government-held student debt – two forms of relief in the original CARES ACT – and does not provide any new relief like what Democrats do offers in their version of the next stimulus, HEROES Act.

“Not doing anything for borrowers is a major omission,” Ben Miller of the Center for American Progress told Yahoo Finance. “With case rates soaring and UI expiring, it’s a bad idea to get borrowers to start paying in two months.”

A student puts on his mask after taking family photos during early 2020 exercises at Kenneth High School at Cranmore Mountain in North Conway, New Hampshire on June 13, 2020 (Photo: Joseph Prezioso / AFP)

Without extending congressional relief granted to student borrowers through the CARES Act, 40 million Americans will likely have to resume payments on September 30, 2020.

“With the temporary hiatus on student loan payments for tens of millions of Americans ending September 30, the already bleak economic outlook has become even more dire,” said Natalia Abrams, executive director of the debt crisis student in a statement. “The Senate’s plan to end this temporary aid is unacceptable. We need immediate action to end the escalating debt crisis, and we’re disappointed that Mitch McConnell and the Senate GOP are not even offering a small step in the right direction. We will continue to pressure the House and Senate to do the right thing and deliver meaningful and lasting reform.

Some borrowers are already receiving notices from Federal Student Aid advising them that the 0% interest period and administrative forbearance are “not permanent and will expire” and that they should wait for “further communications in the near future.” .

Read more: Student loan deferral, forbearance, cancellation and default: the full breakdown

GOP proposal for student loans

The Senate-GOP bill includes a proposal by Senator Lamar Alexander (R-TN), who also chairs the Senate Committee on Education, to simplify the federal student loan repayment system.

Borrowers with student loans who have no income would not repay any student loans, while others would make monthly payments of up to 10% of their discretionary income (after paying for accommodation and food). Either group would have their remaining balance canceled after 20 years for those with undergraduate loans and 25 years for those with graduate student loans.

Ben Miller from CAP, as well as other experts, said the proposal did nothing new to help borrowers.

James Kvaal, president of the Institute for College Access & Success and former deputy domestic adviser to the Obama administration, noted that existing income-based repayment plans already canceled payments for borrowers earning less than $ 19,000. Further, according to Kvaal, the logistics would simply make the proposal unfeasible: “It’s just not possible to set up a new repayment plan and get them all to sign up within two months.”

Miller said Senator Alexander’s reform actually cuts $ 10 billion in existing loan programs, a sort of “backdoor” [Higher Education Act] proposal.”

Either way, Democrats criticized the Republican proposal.

“Ten weeks after Democrats passed a comprehensive bill in the House, Republicans in the Senate couldn’t even agree on what to throw at the wall,” said Sen. Chuck Schumer (D- NY), adding that the proposal was “totally inadequate.”

The HEROES law, passed by the House in May but not taken up by the Senate, provided for relief for borrowers, including a $ 10,000 student loan rebate for those “economically in difficulty”, in addition to an extension of the loan. suspension of interest-free payment on student loans and suspension of debt collection.

UNITED STATES - JULY 24: House Speaker Nancy Pelosi, D-California, tells a story about the attempt to call Rob Reiner, at a press conference to call for the extension of UI in the Capitol Visitor Center through Friday, July 24, 2020. Representatives Danny Davis, D-Ill., Right, and Dan Kildee, D-Mich., also appear.  Pelosi dialed the wrong number while trying to call Reiner to offer condolences to his late father, Carl.  (Photo by Tom Williams / CQ-Roll Call, Inc via Getty Images)

House President Nancy Pelosi, D-Calif., At the Capitol Visitor Center until Friday, July 24, 2020 (Photo by Tom Williams / CQ-Roll Call, Inc via Getty Images)

We have to start facing reality ‘

What would be a happy medium, if there were such a wide gap between the proposals of the two parties?

Kvaal said it was simple: “With the economic crisis, there should be a moratorium on student loan repayments and interest for the duration of the recession. Congress should also forgive the loans of distressed borrowers. “

But even if the moratorium (i.e. suspension of payments and other benefits) continues, “it’s unlikely we’ll see an extension beyond December,” Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade group for loan managers, said Yahoo Finance.

Read more: Student loan repayment options

Buchanan noted that while administrators make few repayments – through interest and such fees – the government is of $ 1.54 trillion in student debt in the first quarter of 2020. Therefore, he added, extending the hiatus until 2021 would impose too high a cost on the government.

“At some point, we have to start facing the reality of rebuilding the economy – toward a trajectory of normality,” Buchanan said.

(Graphic: David Foster)

(Graphic: David Foster)

What if there is no more relief?

As negotiations continue, states and businesses across the country are still grappling with how to move forward in the absence of a COVID-19 vaccine.

The unemployment rate in June was 11.1% and although it was down 2.2 percentage points from the previous month, the unemployment rate is still considered high.

And when student debt relief ends, experts anticipate a wave of defaults and defaults, based on historical trends.

The Center for the Protection of Student Borrowers Noted that when borrowers are put on mandatory payment breaks under disaster relief programs, just as they are currently doing through CARES, new defaults have increased after leaving the programs.

The group also noted that complaints submitted by borrowers to the Consumer Financial Protection Bureau (CFPB) also show how borrowers are struggling to get back on track for repayment due to issues with their loan managers.

Aarthi is a reporter for Yahoo Finance covering consumer credit and education. Follow her on Twitter @aarthiswami. If you are a student borrower struggling with your debt and would like to share your experience, contact her at

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