In the latest coronavirus relief funding package, known as the CARES Act or Phase Three, Congress gave student loan borrowers a break, but sadly, many were left behind. Now a group of senators are trying to help.
When Congress passed phase three of the coronavirus relief program last month, it suspended federal student loan payments, without interest, until October. The Department of Education made the suspension retroactive to March 13e, effectively providing relief to federal student loan borrowers for 7 months. Borrowers who want to make payments can do so and pay off their balance faster without interest. However, millions of borrowers will not receive these benefits for their loans.
This is because the CARES Act only applies to student loans held by the federal government. Many advocates and experts were shocked that the CARES Act excluded borrowers from the old banking system, known as the Federal Family Education Loan Program (FFEL). While some of these loans have been purchased by the Department of Education, most of them are held by commercial lenders or guarantee agencies. According to data from the Department of Education, approximately 7.2 million borrowers have FFEL loans not held by the federal government, totaling nearly $ 170 billion in debt.
The CARES Act relief also does not apply to private student loans. While it was less shocking that Congress chose not to impose the same rules on private lenders, there are millions of student loan borrowers with private loans. According to an analysis by the Institute for College Access and Success (TICAS), 1.1 million undergraduates borrowed private loans in the 2015-2016 academic year alone. And that’s without counting the many borrowers who have taken out private student loans for graduate studies. These loans are already less generous than federal student loans. They may have higher interest rates and are not eligible for federal benefits, such as income-tested repayment or the Public Service Loan forgiveness program (PSLF).
Today, Senator Elizabeth Warren (D-MA), Senator Sherrod Brown (D-OH) and 10 other Democratic senators sent a series of letters to private student loan companies asking for help for these borrowers. “For private student loan borrowers, these economic disruptions will be particularly devastating due to the lack of essential protections, forgiveness programs and repayment options available to federal student loan borrowers,” the senators wrote.
Senators had five requests for these lenders. They demanded that borrowers be allowed to suspend payments without fees or consequences, such as accrued interest, and that the suspension be without consequences for co-signers. Lawmakers urged businesses to end involuntary collections, pay off debt of distressed borrowers, and expand affordable repayment options and loan modification.
According to reports, some private lenders have offered relief to borrowers, at least on an individual basis. However, it is not clear how widespread this relief is and whether it has consequences, such as accrued interest, fees, or negative credit reports.
Warren pushed the Ministry of Education to make payments on behalf of borrowers under the CARES Act, providing a minimum of $ 10,000 debt cancellation, and sees it as an urgent problem.
“We need to do all we can during the coronavirus crisis to help people stay afloat financially, get basic necessities and help keep our economy running, ”Senator Warren said in a statement at Forbes. “I’m fighting to cancel student loan debt and get immediate relief for borrowers, but in the meantime lenders should follow the government’s lead and give people with private student loans urgent relief, including suspension.” payments without penalty. ”
Congress is already talking about a Phase Four package and it is likely that student borrowers will remain a part of that conversation. At a minimum, it looks like Congress could provide relief to borrowers on federal student loans held by commercial lenders and guarantee agencies. Other advocates will likely push for more, but many consider it reasonable that all federal student loan borrowers see at least the same relief.
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