Got student loan problems? A new $3 trillion stimulus bill promises to fix your student loans.
Here’s what you need to know.
House Democrats proposed a new $3 trillion stimulus bill to provide, among other things, more financial assistance in the wake of COVID-19. This new stimulus bill – the HEROES Act – contains several provisions that promise to fix your student loans. Here are 5 ways that this new stimulus bill would fix your student loans. Let’s dive in.
Fix #1: Student loan relief for more borrowers
Status Quo: The CARES Act – which is the $2 trillion stimulus bill that included multiple temporary benefits for your student loans – only applies to federal student loans that are owned by the federal government. For example, federal student loan payments have been postponed, federal student loan interest rates have been set to 0%, and federal student loan debt collection has been halted through September 30, 2020. Unfortunately, that means if you have Federal Family Education Loans (FFEL) or Perkins Loans, these student loans wouldn’t qualify because they are not owned by the U.S. Department of Education.
Proposal: The HEROES Act would expand student loan relief to include FFEL, Perkins Loans and Health and Human Services Loans.
Fix #2: More time for student loan relief
Status Quo: The CARES Act provides six months of student loan relief. After September 30, student loan repayment will restart at your regular interest rate. Student loan debt collection will also resume, which means the federal government can garnish your wages, tax refund or Social Security benefits to pay off federal student loans are past due.
Proposal: The HEROES Act would extend this temporary relief by one year – until September 30, 2021 – plus an additional 30-day transition period during which no fees are levied if you make a late payment and you wouldn’t receive any negative marks on your credit report. If you’re enrolled in an income-driven repayment plan, the HEROES Act wouldn’t require you to recertify your income until after December 30, 2021.
Fix #3: 0% interest
Status Quo: Through September 30, you don’t have to make any payments on your federal student loans and there is no interest accrual from March 13, 2020 to September 30, 2020. This means that the interest rate on your federal student loans is 0%.
Proposal: The HEROES Act would extend this student loan relief through September 30, 2021 or “until the economy shows initial signs of recovery (as defined by the [HEROES] Act.” For FFEL and Perkins Loans, the Education Department (and, as applicable, the Health and Human Services Department) would pay interest on the unpaid principal each month, and borrowers would be “made whole” as if these student loans were part of the CARES Act. The HEROES Act also ensures that any accrued interest on federal student loans prior to March 13 would not be capitalized.
Fix #4: Student loan forgiveness
Status Quo: Two popular ways to receive student loan forgiveness on your federal student loans are through income-driven repayment plans and public service loan forgiveness. Income-driven repayment plans require 20 to 25 years of monthly payments. Public service loan forgiveness requires 120 monthly payments, plus several other requirements to receive federal student loan forgiveness.
Proposal: The HEROES Act would give you $10,000 of student loan forgiveness. This is similar to proposal from Senate Democrats that would provide $10,000 of student loan forgiveness, but much smaller than a House Democrats proposal that called for $30,000 of student loan forgiveness. Under the HEROES Act, all Education Department borrowers would receive upfront student loan debt relief. If you have less than $10,000 of federal student loans, you would receive student loan forgiveness up to your student loan balance (but not more). If you have federal student loans with different interest rates, the student loan forgiveness would apply first to your highest interest rate. If you have the same interest rates, student loan forgiveness would apply first to your highest balance. You would not owe any income taxes on the amount of student loan forgiveness you receive.
Fix #5: Public Service Loan Forgiveness
Status Quo: If you consolidate FFEL loans into a Direct Consolidation Loan, you can qualify for public service loan forgiveness, but any payments made prior to student loan consolidation don’t count toward the required 120 monthly payments. Separately, you must be employed by a public service or non-profit employer at the time that you receive student loan forgiveness.
Proposal: The HEROES Act proposes several changes to the Public Service Loan Forgiveness program. The biggest change could help FFEL borrowers qualify for public service loan forgiveness. Through September 30, 2021 or when the economy shows initial signs of recovery (as defined by the Act, and whichever is longer), the HEROES Act would enable an FFEL borrower to consolidate FFEL loans into a Direct Consolidation Loan and apply payments prior to the consolidation toward public service loan forgiveness or income-driven repayment plans. Separately, the HEROES Act would enable a health care practitioner who works full-time for a public or non-profit employer but is prohibited by state law from being employed directly by their employer to qualify for public service loan forgiveness. The HEROES Act would also remove the provision requiring employment at the time of student loan forgiveness.
Will the HEROES Act become law?
Currently, the HEROES Act is a legislative proposal and is not law. It’s unlikely that the HEROES Act in its entirety will become law. That doesn’t mean there aren’t essential provisions in the HEROES Act that could benefit millions of people of need. However, at more than 1,800 pages, the $3 trillion stimulus bill is an ambitious spending program. While Congress could adopt elements of the HEROES Act, the bill is unlikely to pass the Senate or be signed by the president. Stay tuned.
Student Loan Repayment Options
Whether the HEROES Act becomes law, you still need to execute your student loan repayment plan. Start with these four options, all of which have no fees: