7 benefits for student loan borrowers
This post has been updated to add information about the Public Service Loan Forgiveness Program.
Congress comes from pass the most expensive measure in US history in response to the coronavirus, or COVID-19.
$ 2.2 trillion stimulus package is meant to help the US economy weather the pandemic as states shut down and jobless claims peak.
For more than 44 million borrowers with $ 1.5 trillion in outstanding student debt, Congress is offering relief on top of what the White House and the Department of Education have already announced.
The experts were not impressed. Here are the details:
The good news
1) Borrowers with federal student debt do not have to pay them until September 30 (six months) as they are suspended. This includes loans to parents.
2) Interest is also suspended until September 30, 2020.
3) If you participate in a rebate program, like PSLF, your suspended payments for those months will still count.
Editor’s Note: Several readers have noted that FedLoan, the loan service for PSLF program officials, has not updated its website to reflect this initiative. However, FedLoan has confirmed to Yahoo Finance that suspended payments will count towards the remittance.
4) Credit bureaus will treat suspended payments as regularly rescheduled payments.
5) If a borrower defaults on their student loans, debt collection is suspended (their salary will not be garnished, the tax refund will not be reduced, etc.).
The government is also repaying $ 1.8 billion in repayments to about 830,000 student loan borrowers who had defaulted on their loans and had collected debts since the declaration of the national emergency.
6) If your employer pays your student loan payments, they can do so tax-free until January 1, 2021 for a maximum of $ 5,250 per year.
“I think this is a start in the right direction, but not enough,” said Jake Northrup of Experience Your Wealth at Yahoo Finance. “With the cost of education continuing to rise and more and more employers demanding graduate degrees, I think this income exclusion needs to be permanent so that more employers can help their employees to pay off their student loan balances. “
7) All Federal Student Loans have a 0% interest rate for at least 60 days starting March 13 – hence abstention without penalty is an option for a 60 day period, if you ask your manager.
“Today’s relief package shows how little we have learned”
At the same time, consumer advocates were not happy with the overall picture.
“The unsuccessful response of lawmakers to the latest financial crisis has led directly to our current student debt crisis,” former Consumer Financial Protection Bureau student loans ombudsperson Seth Frotman said in a statement. “Today’s relief program shows how little we have learned over the past decade. Unless the Trump administration and Congress take significant and comprehensive additional action on behalf of the tens of millions of American families with student loans, the next wave of the student debt crisis will be even more devastating. “
Among the frustrations raised by consumer advocates with the current package, two stand out:
1) Only borrowers with federal direct loans are eligible. Borrowers with federally guaranteed loans held by private companies and / or private student loans do not.
Two consumer advocates, Americans for Financial Reform and the Student Borrower Protection Center, wrote letters to banks and refinancing companies to give borrowers the same benefits as federal loan holders.
“Private student loans are an important segment of the consumer credit market, nearly at the same level as personal consumer loans and overtaking both payday loans and unpaid medical debts,” Seth Frotman and Alexis Goldstein, from each organization respectively, wrote to Citizens Financial Group President and CEO Bruce Van Saun. “If immediate action is not taken, the effects of the coronavirus pandemic could significantly jeopardize the financial lives of millions of borrowers who relied on private student loans to pursue the American dream. It must not happen.
2) The package also does not contain any student debt cancellation. Democrats have proposed debt cancellation between $ 10,000 and $ 30,000 to help borrowers weather the pandemic and the economic crisis.
Experts are also worried about what happens when the economy and jobs return to normal.
Previous cases where disaster-affected borrowers were on mandatory forbearance ended up struggling to get back on track as agents were unable to guide them to affordable repayment options after the period ended. , according to the Frotman team find.