President Donald Trump’s executive orders issued earlier this month in response to the ongoing pandemic may provide a short-term reprieve to student loan borrowers whose payments were set to restart in just over a month, but it's unclear how they will be implemented and if they will provide the intended relief to borrowers in need.
Trump signed a series of executive orders, one of which extended the suspension on interest accrual for federal student loans, as well as the forbearance period through the end of the year, in an effort to bypass Congress and provide some short-term relief from the economic fallout caused by the novel coronavirus.
Trump’s executive actions are limited in scope and are meant more as a stop-gap than a long-term fix, and some believe the move will create an administrative and implementation headache — both now and when the orders expire at the end of the year.
First and foremost, Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com, said the machinations of the executive order will be similar to what took place back in March when Trump signed an executive order two weeks before Congress passed the the Coronavirus Aid, Relief and Economic Security (CARES) Act.
Kantrowitz contended Trump does not have the authority to pause payments and interest accumulation through executive action, but doubts the move will face a legal challenge since it has bipartisan support. If Congress passes a measure that incorporates elements of the executive order in the package, it would remove any issue surrounding the legality of the payment clause and interest waiver.
Congress may now have added pressure to get legislation passed to avoid setting a precedent that a president could have the authority to forgive all student loans, Kantrowitz said — something Republicans are wary of allowing should a Democrat take the White House.
Kantrowitz also noted that the interest waiver won’t apply to all loans, with private loan borrowers and those with Perkins loans being left out. He estimated that roughly 8 million borrowers would not be covered under the executive order.
As for the borrowers this does apply to, the pause in payments likely won’t go toward borrowers under the Public Service Loan Forgiveness (PSLF) program, but would count as time accrued in 20 or 25-year income-driven repayments plans, Kantrowitz said.
At a House Committee on Education and Labor hearing Friday detailing the executive order and its shortfalls, in which Republicans didn’t participate, Ben Miller, vice president for postsecondary education at the left-leaning Center for American Progress, also noted the broad swath of borrowers the orders would not help and said it does not replace the need for congressional action.
“On the student loan issue, the executive order is at best an insufficient step that still leaves millions of borrowers in the lurch, lacks meaningful details, and could be bad for teachers, social workers, and others engaged in meaningful public service,” he said.
Miller noted that the timing of the executive order, which runs through the end of the year, puts borrowers in a precarious place around the holidays with a slim chance the economy has rebounded by that point.
“Having roughly 26 million borrowers all enter repayment during the holidays is an implementation disaster in the making,” Miller said, calling for a plan that pauses payments for a full year and ties restarting interest accumulation to positive economic indicators.
Both Miller and Kantrowitz stressed the fact that the order lacks key details regarding whether borrowers would need to opt into the deferment or forbearance period in order to receive a pause in their payments. NASFAA is actively engaged with the Department of Education (ED) and Federal Student Aid (FSA) to gather more details.
Alexis Goldstein, a senior policy analyst at Americans for Financial Reform, pointed out that letters notifying borrowers that their payments are scheduled to resume at the end of September have already been sent to some.
“If the department hasn't clarified what's going to happen, are they going to direct the servicers to stop sending those notices?” she said. “Servicers don't have a great track record of implementing things perfectly. My concern is that there's going to be a lot of confusion and a lot of chaos.”
Goldstein added that without clear and timely guidance from ED, it may not provide borrowers the intended reprieve.
“The presidential memorandum was supposed to give some breathing room,” she said. “But without any directives from the department on their website, I'm not really sure that I'm convinced that it's going to be implemented quickly.”
Beyond the pressure Congress is already facing to get another relief package passed — particularly due to the expanded unemployment benefits coming to an end — Goldstein said the executive orders from the White House doesn’t make legislators’ jobs any easier.
“Even assuming there are no implementation problems, the position we've always taken is that a suspension isn't enough because the labor market hasn’t improved,” she said. “There's two things [Congress] can do right now: They can get people cash, which obviously isn't happening because it seems like Congress is in recess, or you can reduce their expenses. And this action leaves out a lot of people still.”
Publication Date: 8/18/2020