Nine million student loan borrowers don’t have debt relief

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By Delece Smith-Barrow

Once the Department of Education announced that federal student loan holders wouldn’t have to make payments from March 13 through Sept. 30 because of the novel coronavirus pandemic, you could practically hear millions of millennials and Generation Z-ers breathe a sigh of relief. Another reason for social-distance celebrating is that the interest rate on loans will be 0 percent during this period. Presidential candidates, nonprofits, parents and so many others have been begging for assistance with managing the overwhelming student loan debt, and this deal sounds almost too good to be true.

And for many borrowers, it is.

Borrowers who have a Perkins loan or Federal Family Education Loan that is privately held are not entitled to debt relief through the CARES Act, the sweeping coronavirus relief bill for small business owners, students and other financially stressed people that President Donald Trump signed into law on March 27. The pause on student loan payments and the decreased interest rate are for all other federal loan borrowers. The Consumer Bankers Organization, the Education Finance Council, the American Federation of Teachers and nearly two dozen other organizations asked Congress this week to make concessions for “as many as 9 million federal student loan borrowers who hold loans that were not covered by the CARES Act,” according to a joint letter from the group. The letter was sent to the speaker of the House, Nancy Pelosi (D-Calif.), House minority leader Kevin McCarthy (R-Calif.), Senate majority leader Mitch McConnell (R-Ky) and Senate minority leader Chuck Schumer (D-New York).

It’s unclear why these borrowers were left out of CARES, but the history of these loans may give some clues. And higher education experts say there are still some options for Perkins and Federal Family Education Loan borrowers who want debt relief.

“Most FFEL loans and Perkins loans are privately held, by either banks or institutions of higher education,” said Ben Miller, vice president for postsecondary education at the Center for American Progress, which also signed the letter. “Getting access to them is a little different than direct loans, where the government owns them and has them on its books.”

The government stopped allowing colleges and universities to disperse new Perkins loans on Sept. 30, 2017. These loans were for undergraduate and graduate students with great financial need. About 1.9 million people hold Perkins loans. Under the FFEL loan program, private lenders gave out loans that were guaranteed by the government, but the Health Care and Education Reconciliation Act ended that program in 2010. About 7.2 million borrowers have FFEL loans that are held by private commercial entities or guaranty agencies, said Miller.

The commercial loans are something of a hassle for the government since they involve other entities. Some Perkins and FFEL loans, however, are federally owned and those fall under the current debt relief plan.

There is some hope for borrowers who have privately-held Perkins loans and FFEL loans, but they should temper their expectations.

“Students with old FFEL and Perkins loans that are not held by the government can consolidate their loans into the direct loan program,” said a spokesman for Sen. Lamar Alexander, the chairman of the Senate’s Health, Education, Labor and Pensions committee. That would make the loan eligible for relief under the CARES Act.

Consolidation can simplify loan repayments because it combines several loans with varying interest rates and conditions into one new federal loan, which would fall under the parameters for debt relief. But there can be downsides.

A consolidated loan can be costlier. “The way the interest rate is calculated on consolidation loans rounds up to the nearest eighth percent,” said Jill Desjean, a policy analyst at the
National Association of Student Financial Aid Administrators. “You actually do get a slightly higher interest rate than you would have on all of your underlying loans.”

Consolidation also takes time, so desperate borrowers may still have some rough days ahead.

“If it took 30 or 60 days to go through, you would have gone to a lot of effort and potentially cost yourself some money on the interest and possibly cost yourself some benefits, without really seeing a ton of relief on the repayment relief coming out of CARES,” Desjean said. “Proceed cautiously and know exactly what consolidation does before you go down that route. It’s not a terrible option, but for some people it could have implications that would be less than ideal.”

Congress is planning to offer more help to boost the economy, which may help borrowers who didn’t get a break this time.

“My hope would be that they fix this issue in the next bill or if they do any sort of interim package,” said Miller.

Should all Perkins and FFEL borrowers receive debt relief because of the coronavirus pandemic? What else can the federal government do to lessen the burden of student loan payments? Email or tweet me your thoughts.

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Nine million student loan borrowers don’t have debt relief

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