House and Senate Coronavirus Bills Both Provide Student Loan Relief
Democrats in the U.S. House of Representatives and Republicans in the U.S. Senate have introduced legislation to provide emergency assistance in response to the coronavirus pandemic. Both bills include borrowers with student loan relief, but differ on the details. The House bill is more generous than the Senate bill.
U.S. House of Representatives Proposal
The Take Responsibility for Workers and Families Act was introduced in the U.S. House of Representatives on March 23, 2020. It includes a tax-free payment pause and a tax-free partial loan cancellation on federal and private student loans.
Student Loan Payment Pause
The legislation will require the U.S. Department of Education and the U.S. Department of the Treasury to make payments on all federal and private student loans during the national emergency period and for 6 months afterward.
Eligible federal education loans include all loans made under the William D. Ford Federal Direct Loan Program (DL), Federal Family Education Loan Program (FFELP) and Federal Perkins Loan Program.
Eligible private student loans include most private student loans that are issued expressly to pay for postsecondary educational expenses. Home equity lines of credit (HELOC), home equity loans and mortgages are not eligible.
Payments on federal education loans will be made by the U.S. Department of Education and payments on private student loans will be made by the U.S. Department of the Treasury.
The payments will be based on the payment plan selected by the borrower.
There will be no interest capitalization during the emergency period and for 6 months afterward.
Borrowers will not be required to make any payments during the period in which the federal government is making payments on the borrower’s loans. This forbearance will be retroactive for borrowers who are delinquent but not yet in default, thereby eliminating the delinquency.
Involuntary collection activities, such as wage garnishment and offset of income tax refunds and Social Security benefit payments, will be suspended for the duration of the emergency period and for 6 months afterward.
Payments made by the U.S. Department of Education will be treated as qualifying payments under the Public Service Loan Forgiveness (PSLF) program and for 20- and 25-year forgiveness under income-driven repayment plans. These payments will also be considered as on-time payments for rehabilitation of defaulted federal student loans.
(Payment suspensions under a deferment or forbearance do not normally count toward PSLF. The economic hardship deferment does count toward the forgiveness at the end of an income-driven repayment plan. Other deferments and forbearances do not count.)
Payments made by the federal government will be reported as on-time payments to consumer reporting agencies, as though they were made by the borrower.
The payments made by the federal government will be tax-free to the borrower and will not be reported as income on federal income tax returns.
Borrowers can choose to opt out if they wish.
The national emergency period begins upon enactment and ends upon termination by FEMA of the President’s emergency declaration on March 13, 2020 under Robert T. Stafford Disaster Relief and Emergency Assistance Act.
Cancellation of up to $10,000 in Student Loan Debt
The legislation will cancel each borrower’s total federal and private student loans or $10,000, whichever is less, within 270 days of the last day of the national emergency period.
If a borrower does not specify how to apply the money to paying off their federal and private student loans within 45 days, the money will be applied first to the loans with the highest interest rates. If two fo these loans have the same interest rates, the money will be applied first to the loan with the highest principal balance.
The loan cancellation is excluded from income for federal income tax purposes.
Suspension of Income-Share Agreements
Payments under income-share agreements will be suspended during the national emergency period and for 6 months afterward.
U.S. Senate Proposal
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was introduced in the U.S. Senate on March 19, 2020. It includes a payment pause and interest waiver for all federal education loans in the Direct Loan program.
Payments will be paused on federal education loans under the Direct Loan program for a period of 6 months. (A previous version of the legislation paused loan payments for a period of 3 months, with an option for the U.S. Department of Education to pause payments for an additional 3 months, if needed.)
Interest will be waived and will not accrue on the loans that have been paused. Interest will continue to accrue on other loans.
The paused payments will count toward loan forgiveness programs, such as Public Service Loan Forgiveness and the forgiveness at the end of income-driven repayment plans.
Loans in the FFEL program, Federal Perkins Loans and private student loans are not eligible for the payment pause and interest waiver.