At a press conference Friday afternoon in which President Donald Trump declared a national emergency due to the novel coronavirus outbreak, he also announced he would be pausing the interest on federal loans to support impacted student borrowers — though it’s unclear exactly how that change will be implemented. However, other proposals lawmakers offered this month — such as those to pause loan payments or forgive debt entirely — would go much further to provide debt relief.
The interest accrual pause would apply to all federal loans, including those in income-driven repayment plans, those in forbearance, federally-held Federal Family Education Loan Program (FFELP) loans, and federally-held Perkins loans. The interest waiver will be automatic, retroactively dated to Friday, though Department of Education (ED) officials said it may take time to operationalize.
Earlier this month, the Federal Reserve cut interest rates by half a percentage point — the largest cut since 2008 — due to “evolving risks to economic activity” posed by the spread of the new virus. While federal student loans have fixed interest rates and are therefore immune to such changes, those borrowers may still be impacted. Specifically, there is a growing concern about borrowers’ ability to repay their loans as more offices close their doors to employees to avoid spreading the infection.
During an interview with CNBC Friday before the press conference, Treasury Secretary Steve Mnuchin said the Trump administration is floating the idea of temporarily pausing federal student loan payments for borrowers, explaining that it is on a “list of 50 different items we’re bringing to the president for a decision.”
Student loan borrowers got slammed in the last recession. Even with deferment and forbearance options, millions were forced into default, destroying their financial futures.— Rohit Chopra (@chopraftc) March 13, 2020
Canceling student debt payments, not just delaying them, must be on the table. https://t.co/8Gq3POji2Y
On the same day, a group of Democratic lawmakers — Sens. Patty Murray (D-Wash.), Kirsten Gillibrand (D-N.Y.), and Chuck Schumer (D-N.Y.) — introduced a bill in which they proposed to exempt borrowers from repaying student loans “that were taken out for a disrupted term by providing a temporary waiver of ‘return of Title IV’ rules,” among other support for impacted students.
Plus, nearing the top of the list of Senate Democrats’ COVID-19 economic proposal, was a suggestion for a six-month payment forbearance plan for borrowers impacted by the virus, adding that borrowers should have “the flexibility they need to make loan payments without incurring additional fees, compounding interest or negative incidents reflected in their credit scores.”
On Thursday — in response to the stock market plunge and the government's subsequent pledge to send $1.5 trillion to Wall Street — Rep. Alexandria Ocasio-Cortez (D-N.Y.) also proposed the government cease collection on student loan debt due to the virus, which she posted on Twitter among of a slew of recommendations for the government.
FYI, the amount that the Fed just injected almost covers all student loan debt in the US.— Alexandria Ocasio-Cortez (@AOC) March 12, 2020
There is absolutely NO excuse for not pausing student debt collections, planning for mortgage &rent relief, etc.
We need to care for working people as much as we care for the stock market. https://t.co/IT6qZA2gtt
Both current and former presidential hopefuls have also taken a stab at supporting student loan borrowers amid the outbreak.
Former Vice President Joe Biden’s coronavirus plan aligns closely with Senate Democrats, with a focus on assisting student loan borrowers in entering into forbearance plans. Specifically, Biden urged Congress to “use new legislation or existing authority to provide assistance of forbearance to students and homeowners to provide financial relief until the worst of the economic fall-out of the crisis is over.”
Sen. Elizabeth Warren (D-Mass.) updated her original coronavirus plan this week with a proposal not just to pause loan collection, but a broad cancellation of student loan debt to “stimulate economic growth and deliver financial benefits quickly and widely,” similar to what she proposed when she was running for president — canceling up to $50,000 in student loan debt for millions of borrowers.
“The administration’s proposed approach to the economic impacts of coronavirus is inadequate and misguided,” Warren wrote. “The moment calls for a clear-eyed, data-driven assessment of the problems we face, and a comprehensive plan that matches the scale of those problems. My updated plan presents the latest data and builds on my existing recommendations to offer a comprehensive approach for protecting Americans and our economy.”
Student advocacy groups are also pushing for Congress to grant some sort of relief to student borrowers.
Student Loan Borrower Assistance, a project of the National Consumer Law Center, suggested ED and lenders pause payments, and that borrowers in income-driven repayment (IDR) plans or standard 10-year repayment plans still be able to count the months in which payments are paused toward their IDR payments or Public Service Loan Forgiveness (PSLF).
NASFAA created a web center to keep members and the financial aid community updated on pertinent news related to the coronavirus, and is hosting a free webinar March 17 to review some of the most common questions related to Title IV and COVID-19. Stay tuned to Today’s News and NASFAA’s AskRegs for more news.
Publication Date: 3/13/2020