Private student loan borrowers were left out of the CARES Act. Sen. Sherrod Brown (D-Ohio), left, ... [+]
In the latest package of coronavirus relief funding, known as the CARES Act or Phase Three, Congress provided a reprieve to student loan borrowers, but unfortunately many were left out. Now, a set of senators is trying to help.
When Congress passed Phase Three of the coronavirus relief package last month, it suspended federal student loan payments, interest-free, until October. The Department of Education made the suspension retroactive to March 13th, effectively giving federal student loan borrowers relief for 7 months. Borrowers who want to make payments can do so and pay down their balance faster without interest. However, millions of borrowers will not receive those benefits for their loans.
That’s because the CARES Act only applies to federally-held student loans. Many advocates and experts were shocked to see that the CARES Act left out borrowers from the old bank-based system, known as the Federal Family Education Loan (FFEL) program. While some of those loans were purchased by the Department of Education, most of them are held by either commercial lenders or guaranty 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 doesn’t apply to private student loans. While it was less shocking that Congress chose not to dictate the same rules to private lenders, there are millions of student loan borrowers with private loans. According to an analysis from 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 not counting many borrowers who took out private student loans for graduate school. These loans already are less generous than federal student loans. They can have higher interest rates and are not eligible for federal benefits, like income-driven repayment or the Public Service Loan Forgiveness (PSLF) program.
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 uniquely devastating due to private student loan borrowers' lack of critical protections, forgiveness programs, and repayment options available to federal student loan borrowers," the Senators wrote.
The Senators had five requests for these lenders. They asked that borrowers be allowed to suspend payments without fees or consequences—like interest accrual—and that suspension not trigger any consequences for cosigners. The lawmakers urged the companies to halt involuntary collections, to discharge debt of distressed borrowers, and to expand affordable repayment options and loan modification.
According to reports, some private lenders have been offering relief to borrowers, at least on an individual basis. However, it’s unclear how widespread that relief is and if it has consequences, such as interest accrual, fees, or negative credit reporting.
Warren led a push for the Department of Education to make payments on behalf of borrowers in the CARES Act, providing a minimum of $10,000 in debt cancellation, and sees this as an urgent issue.
“We need to do everything we can during the coronavirus crisis to help people stay afloat financially, afford basic necessities, and help keep our economy running,” Senator Warren said in a statement to Forbes. “I'm fighting to cancel student loan debt and get immediate relief to borrowers, but in the meantime, lenders should follow the government's lead and grant people with private student loans urgent relief – including a suspension of payments without penalty.”
Congress is already talking about a Phase Four package and it’s likely student borrowers will remain a part of that conversation. At a minimum, it seems Congress could provide relief to those borrowers with federal student loans held by commercial lenders and guaranty agencies. Other advocates will likely push for more, but many see it as reasonable for all federal student loan borrowers to see the same relief at the least.
