Amid all the other coronavirus woes, those with student loans are worried about making payments in precarious economic times. Last week, in the US, the CARES act was passed into law, which offers relief to some borrowers—but not all. And the exceptions might surprise you.
The non-profit organization Student Loan Borrower Assistance estimates that about nine million people in the US have at least one student loan that doesn’t qualify for relief under the $2.2 trillion stimulus plan. In total, graduates in the US owe $175 billion in commercially-backed federal loans and $128 billion in private debt.
Payments are due and interest will accrue on all of that despite the CARES Act, explains Georgetown University Law Center professor John Brooks, who specializes in student loan law. He tells Quartz that these gaps in relief are highly problematic. “Forcing changes in private loan terms is tough because they are outside of the legal apparatus that applies to federal loans. But the federal government could do more for federal loans held by commercial lenders,” Brooks contends.
The funds lent via government programs could arguably be subject to more protections than private debt because they were offered under the aegis of the authorities, and certain conditions, like the interest rates that apply to them, are mandated by the state.
It’s not like no one remembered those borrowers exist. It’s just that not everyone who passed CARES really cared, apparently. The stimulus “leaves a lot of people out in the cold through no fault of their own,” says Remington A. Gregg, counsel for civil justice and consumer rights at Public Citizen, a Washington, DC nonprofit that “champions the public interest” and advocated for a more comprehensive stimulus.
There appears to be “no rhyme or reason” for the false distinctions between different borrowers whose loans are still governed by the Higher Education Act but aren’t federally backed, he tells Quartz. Gregg and other consumer advocates “pushed really hard” for wider relief and going forward, he says, Public Citizen will prioritize advocating for the many who fall through the CARES cracks.
But for now, here’s the deal on whether you qualify for relief.
The primary relief offered by the new stimulus suspends student loan payments and interest accrual from March 13 through September 2020. But it doesn’t apply to private loans held by banks or certain federal loans based on “the old bank-based system,” as Forbes so cavalierly put it.
That old system isn’t really that old, actually, and borrowers might rightly be under the impression that these were, well, federal educational loans, given it’s called the Federal Family Education Loan (FFEL) program.
FFEL was initiated in 1966. Banks lent money for school to borrowers at fixed interest rates mandated by federal authorities, and the offerings were presented under the federal educational debt umbrella. Indeed, the government even subsidized some of these loans, paying interest while students were still in school. The program was in place until 2010, and more than 66 million Americans relied on it.
However, the glaring exception in CARES means that if you owe money on a subsidized or unsubsidized Stafford loan, a PLUS loan that paid for educational costs (rather than tuition), or consolidated multiple debts under FFEL, you’re still on the hook for payments, and interest is piling up daily.
Since 2010, federal education debt has been administered directly through the Department of Education with funds backed by the US Treasury. That’s good news for the youth, but doesn’t do much for those who borrowed previously and are still paying (like this reporter).
Another cruel irony of the CARES Act is that Perkins Loans also don’t qualify for relief. That program allowed institutions of higher learning to offer loans directly to needy students and was halted in 2017. As the government’s own student aid website explains, these were ”low-interest federal student loans for undergraduate and graduate students with exceptional financial need.”
So those students who most required help won’t get it during this time of economic crisis. (The Department of Education acknowledged Quartz’s request for comment but has yet to respond to questions about the CARES Act and its impact on borrowers.)
Adam Minsky, a Boston-based attorney whose practice focuses on helping borrowers navigate the complicated American student loan system, laments the gaps in the CARES Act and has some practical guidance for figuring out where you stand and what to do if you fall through the cracks.
If you don’t know whether your debt is public or private or both, one way to check is on studentaid.gov. Private loans won’t be listed. Minsky, who has negotiated with his fair share of lenders, suggests borrowers who owe banks contact lenders directly as they “may also offer some temporary relief.”
Georgetown law school professor Brooks also proposes that all borrowers who aren’t currently on income-driven repayment programs and have been economically hit by the pandemic should “absolutely enroll for those now.” Those loan programs calculate payments based on last year’s tax returns, but you can apply to use your current income instead if it has decreased.
It’s important to note, though, that at this juncture lenders are still trying to figure out implementation of the CARES Act, and there has been some confusing messaging coming from them. Prior to passage of CARES, borrowers were notified based on prior relief proposals that interest accrued before March 13 would be capitalized while payments are suspended, and that a wider swathe of loans would be covered. Now it seems relief applies to a narrower category of borrowers than previously thought, but the interest capitalization question is still up in the air.
Mysteries abound. What will happen to people who were signed up for automatic payments but whose bills won’t come due for the next six months? Do they have to suspend payment themselves? For the time being, interest is still accruing on many lender websites for all loans, it seems—that is expected to be wiped out shortly, but it’ll be up to borrowers to make sure they are properly included in the automatic relief. What about the claim the involuntary collections—like wage garnishment—will be halted?
Gregg of Public Citizen—a lawyer whose job it is to understand legislation—isn’t sure about the answers and suspects there may not be any for some of them. When it comes to involuntary collections, for example, he has yet to find a definition for this term in the US Code. That makes it difficult to fight an attempt to collect a payment that ought to have been suspended.
Each borrower must be vigilant about their own loan situations, many of which are extremely complicated, says the consumer rights lawyer. “In the best of times it’s difficult to navigate the system,” Gregg explains. Add to that the fact that everything the CARES Act touches is in a state of flux and it’s basically chaos. “Agencies are building the plane they are flying in right now.”
In total, US student loan borrowers owed $1.6 trillion as of March 2019, according to the Board of Governors of the Federal Reserve System. NerdWallet’s 2018 survey showed that the average amount of educational debt owed by household was $47,671.
Experts agree that the current situation only highlights what was already an untenable educational debt situation, the crisis that existed before all of this. Gregg calls educational debt “an albatross” that has hampered an entire generation, making it difficult for graduates to pursue the American Dream of home ownership, or even have families. He believes this burden will only be exacerbated by the pandemic.
The last economic crisis drove many Americans back to school due to unemployment or in the hopes of improving their lot. Upon graduation, jobs were hard to find and debts piled up. Gregg explains that at this point, the vast majority of defaults aren’t for the astronomical loans offered to graduates of professional programs like law or medicine, but on loans under $10,000 made to borrowers who must decide month to month whether to eat, make car payments, or pay their education debts.
Gregg suspects that many Americans who resist the notion of student loan cancellation, an idea floated by Massachusetts senator Elizabeth Warren when she was a Democratic presidential candidate, don’t understand that it’s not intended to be a windfall for surgeons making six-digit salaries, say. Rather, cancelation would help lift the many Americans who were struggling before the great recession, after graduation, and to this day, many of whom will have the most trouble getting through the economic collapse prompted by the current pandemic.
Brooks hopes that the national emergency will lead to changes that he’s long advocated, policy shifts that would include getting rid of interest charges altogether and mandatory income-based repayments. “I hope this could be a step in that direction,” he says of the current relief program. “I’m pretty convinced that the coronavirus crisis will lead to some pretty major changes throughout our political and financial system, but it’s a fool’s game to try to predict exactly!”
In the short term, there is no question that some relief for some borrowers is better than nothing at all. However, it’s important to recognize trouble lies ahead. For one thing, Gregg and Brooks both note, quickly-rising unemployment rates will no doubt skyrocket by September, meaning borrowers will need a lot more help.
For another, there is the question of how Americans got here to begin with. Gregg already spent sleepless nights thinking about the last financial crisis and its effect on borrowers, many of whom fell prey to unscrupulous lenders and schools. Now, educational institutions have $14 billion allotted to them through the CARES Act, and no specified oversight mechanism exists to ensure this money is spent appropriately.
“I hope when the history of this time is written, we will not find ourselves saying that the money went to big business,” Gregg says.