If you have student loans, there’s good news in the new stimulus package proposal.
Here’s what you need to know.
The newly proposed $908 billion bipartisan stimulus package —which includes unemployment benefits but no stimulus checks — would extend relief for your student loans through April 30, 2021. If Congress passes this stimulus package, student loan borrowers can continue to expect the following for their federal student loans:
- No payments: federal student loan payments are paused.
- No interest: no new interest will accrue on your federal student loan balance.
- No debt collection: Student loan debt collection of defaulted student loan debt is halted.
The Cares Act—the $2.2 trillion stimulus packages—provided this student loan relief through September 30, 2020 to help student loan borrowers impacted financially by the Covid-19 pandemic. President Donald Trump initially extended this student loan relief through December 31, 2020 through executive action. Then, Trump extended this student loan relief one more month through January 31, 2021.
Student Loans: what’s not in the stimulus package
While million of student loan borrowers would enjoy more student loan relief, there are several things missing from this new stimulus package:
Private student loans
The stimulus package does not include private student loans, which are held by millions of student loan borrowers. The Cares Act only applies to federal student loans, and Congress has not modified this position in any subsequent stimulus package or standalone legislation. Therefore, any borrower with a private student loan will need to make payments in the normal course. If you are struggling to pay off private student loans, contact your lender or student loan servicer. Many lenders and servicers have forbearance or deferment programs that can help you pause student loan payments. However, make sure to read the fine print so you understand the full financial implications of pausing your payments temporarily.
FFELP and Perkins Loans
This stimulus package also wouldn’t include any FFELP Loans or Perkins Loans. FFELP Loans are a type of federal student loan distinct from Direct Loans. FFELP Loans were issued prior to 2010 by banks and other financial institutions. The student loan relief available through the federal government only applies to federal student loans owned by the U.S. Department of Education. Most FFELP Loans are held by banks, financial institutions and other institutional investors. Therefore, FFELP Loans are ineligible. Perkins Loans are issued by colleges and universities. Therefore, if you have a Perkins Loan, you also need to make regular monthly payments in the normal course.
Student Loan Forgiveness
The stimulus package also does not include any student loan forgiveness or wide-scale student loan cancellation. Sen. Elizabeth Warren (D-MA) and Senate Minority Leader Chuck Schumer (D-NY) have called on President-Elect Joe Biden to cancel student loans through executive order. Traditionally, Congress controls federal spending and would need to authorize wides-scale student loan forgiveness. Warren and Schumer believe that the Higher Education Act of 1965 grants power to the U.S. Secretary of Education to cancel student loans. (You can read more about whether a president can cancel student loans.) U.S. Secretary of Education Betsy DeVos disagrees with the notion of cancelling student loans for all student loan borrowers, and said that Congress, not the president, controls student loan policy. That includes, in her view, any plan to cancel student loans for all student loan borrowers (which DeVos opposes).“The Congress, not the Executive Branch, is in charge of student loan policy,” DeVos said during a keynote address last week.
Will Biden cancel student loans?
Schumer renewed his call for Biden to cancel student loans this week, and asked Biden to cancel up to $50,000 of student loan debt for any borrower with an annual income less than $125,000. This revised position means that not everyone would qualify for student loan cancellation. Schumer wants Biden to cancel student loans to stimulate the economy, reduce social and racial disparity, and help young Americans begin their financial and personal life without the burden of student loan debt. Schumer also said Biden is “considering” his and Warren’s plan to cancel student loans, although there is no indication that Biden would really cancel $50,000 of student loans for millions of student loan borrowers. Instead, Biden wants to cancel $10,000 of student loans for every borrower as a result of the Covid-19 pandemic. Biden has indicated his support for a stimulus bill like the Heroes Act, a $2.2 trillion stimulus package from House Democrats, that would cancel $10,000 of student loan debt for borrowers who are “economically distressed.” Biden says Congress should cancel student loans immediately. Importantly, Biden thinks Congress (the legislative branch) should pass student loan forgiveness, and has not endorsed the idea that a president (the executive branch) can cancel student loans through executive order. Senate Republicans and the bipartisan group of centrists behind the new stimulus package proposal didn’t include student loan forgiveness in the stimulus bill. Why? There could be several reasons not to cancel student loans, including other economic priorities, total cost to taxpayers and issues of fairness.
Pay Off Student Loans
It’s unclear whether Congress will pass this stimulus package during the current congressional term. If Congress does not pass the stimulus package in its current form, federal student loan relief would still be in effect through January 31, 2021. Given the uncertainty in Washington, however, make sure you have a game plan to pay off student loans now. Here are 3 ways to help pay off student loans, all of which have no fees:
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