August 5, 2020

Second Student Loan Stimulus: Five Possible Scenarios

Second Student Loan Stimulus: Five Possible Scenarios

Millions of student loan borrowers are anxiously waiting for news regarding whether there will be additional or extended student loan relief as part of a second major stimulus bill.

Congress passed the CARES Act in April in the wake of the rapid economic collapse brought about by the Covid-19 pandemic. Although the implementation of the CARES Act has been messy, the CARES Act provided substantial relief to student loan borrowers. The stimulus bill suspended payments, interest, and collections on all government-held federal student loans.

But this student loan relief ends on September 30th. This month, the U.S. Department of Education will start sending out notices to millions of borrowers letting them know that they will have to resume their payments soon — even as millions of Americans remain in financially precarious positions.

Congressional leaders in the House and the Senate, as well as White House officials, have been engaged in discussions about a possible new stimulus bill. But the parties remain far apart, and it is unclear what, if any, relief may come next.

Student loan borrowers can expect one of these five possible scenarios to become a reality within the next two months.

Scenario One: Congress Passes the HEROES Act

House Democrats passed the HEROES Act in May, which would extend the CARES Act’s student loan payment and interest suspension for an additional 12 months. The HEROES Act would also expand the CARES Act’s protections to include commercially-issued FFEL-program federal student loans, as well as federal Perkins loans. The bill would also provide $10,000 in federal and private student loan forgiveness to borrowers experiencing economic distress. House Democrats recently passed a separate bill that would also suspend private student loan payments for 12 months.

In order for the HEROES Act to become law, however, the Senate would have to pass it as well, and the President would have to sign on. Senate Republican leaders rejected the HEROES Act without even allowing a vote on it.

Likelihood of happening: Very low.

Scenario Two: Congress Passes HEALS Act

The Senate came up with its own stimulus proposal, distinct from the HEROES Act. The Senate GOP proposal, called the HEALS Act, includes a proposal to simplify the federal student loan repayment system. The plan would include an income-driven repayment option that would allow student loan borrowers earning no income to have no monthly payment obligation, while other borrowers would have to pay 10% of their discretionary income towards their student loans.

However, this proposal is virtually identical to existing income-driven repayment plans. The HEALS Act includes no extension of the student loan relief provided by the CARES Act, and no student loan forgiveness. Because of this, House Democratic leaders oppose the bill, saying it does not go far enough. House Democrats would have to approve any bill passed by the Senate. There are indications, however, than even Republican senators do not fully support the HEALS Act.

Likelihood of happening: Very low.

Scenario Three: Congress Compromises

While House Democrats and Senate Republicans remain far apart on stimulus talks, negotiations are continuing, and it is very possible they could find common ground to compromise in time for the September 30th expiration of the CARES Act protections. While Republicans have shown little interest in enacting broad student loan forgiveness, some congressional Republicans have indicated an openness to extending the CARES Act’s student loan relief.

A GOP congressman introduced legislation extending the suspension of payments and interest through the end of 2020. While this three-month extension is far shorter than the 12-months suggested by House Democrats, and it would not include any student loan forgiveness, it would buy student loan borrowers some additional months of suspended payments and interest, while effectively punting any further relief to the next Congress after the election.

Likelihood of happening: Possible.

Scenario Four: Executive Action by President Trump

President Trump said at a recent press briefing that his administration is potentially considering extending the current moratorium on federal student loan payments. “We… suspended student loan payments for six months, and we’re looking to do that additionally and for additional periods of time,” he said. Trump provided no further details.

With his re-election at stake, President Trump is likely very much aware of the political fallout that would occur when millions of student loan borrowers receive bills and demands for payment merely days prior to the November election. President Trump provided student loan relief via executive order in March, prior to the CARES Act’s passage, when his administration enacted a temporary emergency interest freeze and payment suspension on government-held federal student loans. Congress subsequently codified and extended that student loan relief in statute when it passed the CARES Act.

It is possible that if Congress cannot reach a compromise, the Trump administration could act unilaterally and enact a new executive order extending the existing student loan payment suspension and interest freeze. This would likely be a limited extension designed to get the administration through the November elections.

Likelihood of happening: Possible.

Scenario Five: No Further Student Loan Relief

If Congress does not reach a compromise on extending student loan relief, and President Trump does not act through an executive order, then the CARES Act’s student loan relief provisions will end on September 30, 2020. Billing will resume, and borrowers should expect their next billing date to be in late October or early November. Interest will start accruing again. And collections activities on defaulted federal student loans that were previously suspended — such as wage garnishments and seizure of federal tax refunds — will resume, a well.

Many student loan borrowers will be outraged or unable to pay in October and November, just as they are about to case their vote in the November elections. Lawmakers therefore have a powerful incentive to reach some sort of compromise. But if they don’t, borrowers may have no choice but to resume normal repayment, regardless of economic circumstances. Here’s what to do if Congress doesn’t extend student loan relief.

Likelihood of happening: Lower, but possible.

Further Reading

Trump: “We’re Looking” At Extending Student Loan Payment Suspension

GOP To Include $1,200 Checks, But No New Student Loan Relief, In Stimulus Bill

Democrats: Freeze All Student Loan Payments, Interest For 12 Months

Over 100 Civil Rights Groups Tell Congress: Cancel Student Debt In Next Stimulus Bill

Rep. Ayanna Pressley: Cancel Student Loan Debt Now

GOP Concerns Over Costs Could Limit Student Loan Relief In Next Stimulus

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