Personal Finance

Final Stimulus Deal: What Student Loan Borrowers Need To Know About Relief Ending

Congress has reached an agreement on a new stimulus package. And it’s not great news for student loan borrowers.

Background

Lawmakers have been engaged in intense talks to reach consensus on a new compromise stimulus package that can pass Congress this week. While there has been broad agreement over some areas of relief — such as extending unemployment relief and providing additional funding to small businesses — other proposals have generated more partisan opposition. This has been an impediment to finding common ground.

Since March, the CARES Act has suspended all payments on government held federal student loans, frozen all interest, and stopped all collections efforts. This has included involuntary wage garnishments and interceptions of federal tax refunds. The student loan relief was originally scheduled to end in September, but the Trump administration granted two extensions — the first to December 31, and the second to January 31, to provide Congress with additional time to extend the relief further.

Final Stimulus Package — No Further Student Loan Relief

Congress had appeared likely to extend the existing student loan relief into the spring. A draft summary of a bipartisan stimulus proposal released earlier in December had included an extension of existing student loan relief to April.

But POLITICO reports that the final version of the stimulus package poised to pass Congress includes no further extension of student loan relief. And the billions of dollars allocated towards the student loan relief extension that was present in the earlier draft summary is not listed in a summary of the latest bill.

That means that borrowers may have to plan on resuming their payments shortly after January 31.

Biden Could Still Extend Student Loan Relief

Despite the bad news for student loan borrowers, President-elect Biden could still further extend the moratorium on student loan payments, interest, and collections via executive order once he takes office on January 20, just as the Trump administration did in August and again earlier this month, particularly if the economy does not show signs of improving. Biden has previously expressed a willingness to enact executive orders as necessary to bolster the economy.

However, student loan servicers and some consumer advocates have expressed concern about the short time window between January 20 (when Biden would be sworn in) and January 31 (when student loan relief ends). Preparing to transition millions of borrowers back into repayment, and then halting the process less than two weeks from expected implementation, could cause administrative problems and further headaches for struggling student loan borrowers.

In a recent survey by Student Debt Crisis and Savi, 77% of student loan borrowers covered by the moratorium indicated that they do not feel financially secure enough to resume their student loan payments, and more than half of surveyed borrowers rate their current financial wellness as poor or very poor since the pandemic began in earlier this year.

What Else Is In the Bill?

While the final stimulus package includes no extension of existing student loan relief, the bill nevertheless does contain important provisions, including the following:

  • $600 stimulus checks for people who made under $75,000 in 2019, and smaller stimulus checks for those who made between $75,000 and $99,000. Like with the CARES Act, the stimulus checks should not be counted as taxable income for purposes of federal student loan income-driven repayment plans, although this has not yet been confirmed.
  • An extension of unemployment benefits of up to $300 per week, starting Dec. 27 and running through mid-March 2021.
  • Additional funding for small businesses through the Paycheck Protection Program.
  • $25 billion in emergency rental assistance, and an extension of the eviction moratorium to January 31, 2021.

What Should Student Loan Borrowers Do?

For now, student loan borrowers should expect to enter repayment in February, after the moratorium expires January 31. Under the current provisions governing the moratorium, the months of suspended payments will continue to count towards loan forgiveness programs (such as Public Service Loan Forgiveness), as well as loan rehabilitation programs for borrowers making efforts to cure defaulted federal loans.

Borrowers who are concerned about affording their payments in February should consider their repayment plan options, even if Biden may further extend the relief via executive order. For borrowers who have experienced a reduction in income, an income-driven repayment plan can often provide affordable monthly payments. Borrowers already on an income-driven repayment plan can apply to have their monthly payments recalculated at any time due to changed circumstances, such as a reduction in income, job loss, or change in marital status.

In addition, many student loan servicers have voluntarily pushed annual recertification deadlines for income-driven repayment plans well into 2021, meaning many borrowers already on an income-driven plan may not have to take action on their loans for several more months. Borrowers should contact their loan servicers for additional information.

Further Reading

Ayanna Pressley: Biden Should Cancel $50,000 In Student Loan Debt For Every Borrower

Would Your Student Loans Be Eligible To Be Cancelled By Biden? It’s Complicated

DeVos Extends Student Loan Relief Into 2021: What You Need To Know

Could Biden Cancel Some Student Debt Through Executive Action?

What The Election Results Mean For Student Loan Borrowers

Biden’s Victory Means DeVos Is Out By January


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