With Congress considering more coronavirus relief for the American people, the American Council on Education (ACE)—a higher education association—has called for extended student loan relief on behalf of more than 30 higher education organizations.
In a letter to Speaker of the House Nancy Pelosi, and Minority Leader Kevin McCarthy, ACE requested that Congress extend the benefits of the CARES Act through at least June 30, 2021, or until unemployment falls below eight percent for three consecutive months. The CARES Act, passed in March, suspended student loan payments for six months, interest-free.
The letter also called for including other loans left out of the CARES Act, like the federal loans held by commercial lenders. Given that borrowers would have been out of repayment for many months, ACE said borrowers should be immediately notified when the benefits expire that their loan payments will restart in the following days. This is important so borrowers don’t mistakenly default on their student loans.
To help ensure higher education is affordable for those enrolled now or who might enroll in the coming months, the associations called for a zero origination fee for student loans and a lower interest rate of 1.5%, given the low rates the federal government can borrow at now.
The association made two other important requests for provisions that would benefit borrowers now and in the long-term. First, federal student loans differ from most consumer debt products in that they cannot be discharged in bankruptcy. It called for Congress to make them eligible for bankruptcy, something former Vice President Joe Biden has also called for in his presidential campaign.
Second, it asked for a change to tax law regarding forgiveness under income-driven repayment (IDR). Borrowers in IDR have student loan payments based on a percentage of their income. After 20 or 25 years of repayment (depending on their specific plan), any remaining balance is forgiven. However, that forgiveness is considered taxable income, which can hurt borrowers — especially those whose education never led to a sufficient income. The letter calls for Congress to correct that and make it tax-free.
The association also addressed a hot topic around student loans: student debt cancellation. Broad student debt cancellation comes at a high cost and would benefit many high-income borrowers who attended expensive professional and graduate schools. For that reason, it urged Congress to target the borrowers in financial distress if they pursue any debt forgiveness.
It also reminded Congress of the difficulties of implementing the Public Service Loan Forgiveness program and suggested it pay attention to the design of any forgiveness program so the Department of Education can effectively administer it.
With the economic fallout likely to last beyond September, this relief for student borrowers is sure to be needed by many. Some will still call for debt forgiveness, but this proposal would provide relief for all borrowers in the next year. The letter represents a large number of higher education institutions across the country and will likely be read by member of Congress.