Will the HEALS Act help student borrowers?

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By Delece Smith-Barrow

For millions of student borrowers, the clock is ticking on how long they can go without paying back their loans. Until Sept. 30, borrowers who have federally-held federal loans do not have to pay them back because of the coronavirus stimulus package known as the CARES Act. But what happens on Oct. 1? This week Lamar Alexander, chairman of the Senate’s Health, Education, Labor and Pension Committee, introduced a bill to help borrowers pay off their debt, or, if they’re unemployed, pay nothing at all.

“If you are one of 43 million Americans with a student debt, you can continue to defer your monthly payment after October 1 if you have no income,” Alexander said in a statement. “When you do begin earning income your monthly payment will never be more than 10% of your income AFTER deducting the necessities of life such as rent or mortgage and food.”
But many higher education experts say Alexander’s Safely Back to School and Back to Work Act is ill-timed and does not address borrowers who most need help, such as those in default or parents who are struggling to pay off student loan debt they took on for their kids.

The bill is part of the Republicans’ new HEALS Act, a proposed stimulus package that could help reopen schools, improve health care and boost the economy. Safely Back to School and Back to Work would help borrowers in a few ways. It would give borrowers two options for paying back their loans instead of the nine options currently available. One is akin to a mortgage, where a borrower would make a monthly payment for 10 years. Another option allows borrows to make payments based on their income. If they have no income or a very meager one, the payment is zero.

If this all sounds familiar, that’s because it is.

“The current law on the books is if you have a federal student loan, the overwhelming majority of federal student loan borrowers have the right under federal law to make a payment based on their income, not how much they owe,” said Seth Frotman, executive director of the Student Borrower Protection Center. “If they become unemployed, they have the right to pay zero dollars.”

The Department of Education’s Standard Repayment Plan lets borrows make payments over 10 years, or in some cases up to 30 years. Their Income-Driven Repayment plans don’t require borrowers under great financial hardship to make payments.

“The idea that this is some new-found new policy idea that is being put in place as a response to the crisis is just not true,” said Frotman, who’s also a former assistant director and student loan ombudsman for the Consumer Financial Protection Bureau.

The Student Borrower Protection Center and 55 other organizations sent a letter this week to Senate leaders saying they agree that student loan payment plans should be simplified, but that those changes aren’t timely enough.

“As Chairman Alexander rightly noted in floor remarks on July 21, the CARES Act’s automatic forbearance period – a crucial baseline of support for most student loan borrowers in repayment – is set to expire at the end of September,” the letter says. “Unfortunately, provisions offered in lieu of extended forbearance offer little in the way of direct relief for Americans facing the most pressing financial distress.”

This type of sweeping change likely can’t happen before Sept. 30 and only looks at one part of the student debt crisis, which warrants more attention, said James Kvaal, president of The Institute for College Access and Success.”

“The idea of simplifying repayment plans is worth considering,” he said. “It’s going to take a long time to do. It’s not something that you do in 60 days, and the conversations around simplifying repayment plans really should happen in a broader conversation about how we’re going to make college financing affordable, as opposed to rushing it through in isolation as part of the emergency.”

Alexander may be introducing this legislation now to make a larger point about the student loan repayment system, said Beth Akers, a senior fellow at the Manhattan Institute and co-author of the book “Game of Loans: The Rhetoric and Reality of Student Debt.”

“What I think he’s trying to highlight is that we have in place already an existing safety net,” said Akers. “It’s really designed to deal with circumstances like today,”.

Part of the challenge, she believes, is making sure people who have the most financial need know about their options for help.

“We tend to see that the people who frequently take advantage of the income-based repayment forgiveness are graduate students, people with graduate and professional degrees,” she said. “Part of that is because they’re eligible because they have a lot of debt. But I think part of that is an awareness too.”

Akers, who typically agrees with Alexander’s policies, said that under normal circumstances his proposed bill would be a “fantastic policy recommendation,” but this isn’t the time to make it happen. “At the moment, the complexity of making that happen is just too much for us to deal with during what is otherwise a health and economic crisis.”

How much should Congress do to help student borrowers during the coronavirus pandemic? Which borrowers should have their debt forgiven? Email or tweet me your thoughts.

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Will the HEALS Act help student borrowers?

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