Senate HEALS Act Does Not Help Student Loan Borrowers

The Health, Economic Assistance, Liability Protection, and Schools Act (HEALS Act) is a coronavirus relief package introduced in the U.S. Senate on July 27, 2020. The legislation does not extend the payment pause and interest waiver for federal student loans that expires on September 30, 2020, unlike the Heroes Act that passed the U.S. House of Representatives on May 15, 2020. It does not provide any real relief for student loan borrowers. 

Supplemental Federal Financial Relief for COVID-19

The HEALS Act consists of several bills that address different aspects of the need for financial relief, including

• The American Workers, Families, and Employers Assistance Act (S. 4318), introduced by Senator Chuck Grassley (R-IA), provides additional $1,200 stimulus checks, including $500 per child. College students who are dependent on their parents will qualify for the $500 per child recovery rebate. In addition, the federal unemployment rebate will be reduced from $600 per week to $200 through October 5, 2020 and then total unemployment benefits will be capped at 70% of average weekly wages or $500, whichever is less.
• The Coronavirus Response Additional Supplemental Appropriations Act, 2020 (S. 4320), introduced by Senator Richard C. Shelby (R-AL), provides $29.4 billion in additional funding for the Higher Education Emergency Relief Fund. Colleges may use this money to provide “financial aid grants to students (including students exclusively enrolled in distance education), which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus” but are not required to do so. Colleges may choose to use the money to defray institutional expenses related to the coronavirus pandemic. 
• The Safely Back to School and Back to Work Act (S. 4322), introduced by Senator Lamar Alexander (R-TN), creates a new income-determined repayment plan, clarifies the authority college financial aid administrators to consider financial aid appeals in connection with the pandemic, and makes several technical amendments to financial aid programs. 

The bills do not address the end of the payment pause and interest waiver for federal student loans. Borrowers will need to resume making payments on their student loans on October 1, 2020.

Income-Determined Repayment Plan

Sen. Alexander’s bill includes a proposal for simplifying student loan repayment. It will replace the dozen current loan repayment plans with just two. One repayment plan will be the standard 10-year repayment plan. The other will be a new income-determined repayment plan.

Borrowers may continue in their current repayment plan. However, if a borrower wants to change repayment plans, their only choices will be standard repayment and income-determined repayment. Likewise, borrowers who enter repayment on or after October 1, 2020, may choose only one of the two repayment plans.

Income-determined repayment is yet another income-driven repayment plan and does not provide student loan borrowers with any new relief that they do not already have available. 

See our Income Driven Payment Calculators:

• Income-Contingent Repayment Calculator
• Income-Based Repayment Calculator
• Pay-As-You-Earn Repayment Calculator
• Revised Pay-As-You-Earn Repayment Calculator

The monthly payment under income-determined repayment will be based on 10% of discretionary income, which is the amount by which adjusted gross income (AGI) exceeds 150% of the poverty line. 

This is the same formula as used by the pay-as-you-earn repayment plan, but with a few important differences that make it more expensive for borrowers.

• Although the remaining debt will be forgiven after 20 years in repayment for undergraduate borrowers, the repayment term will be 25 years for graduate borrowers. These repayment terms exclude time during which the loan is in delinquency or default. 
• Income-determined repayment has a marriage penalty, where the loan payments of married borrowers are based on joint income even if the borrower files a separate federal income tax return. 
• There is no standard repayment cap on the monthly payments under income-determined repayment. The monthly payments will increase as the borrower’s income increases, without bound. 
• The percentage of the poverty line is reduced by 5 percentage points for each percentage point by which the borrower’s income exceeds 800% of the poverty line, but not below zero. This bases discretionary income on AGI for borrowers whose income exceeds 830% of the poverty line. Based on the current poverty line, 800% of the poverty line in the continental U.S. is $102,080 for a family size of one, $137,920 for a family size of two and $209,600 for a family size of four.
• Income-determined repayment does not waive the interest on federal student loans, not even on subsidized loans during the first three years.
• Income-determined repayment will not be available to Parent PLUS loan borrowers, not even if the Parent PLUS loan is included in a Federal Direct Consolidation Loan. 

Payments made under income-determined repayment will count toward Public Service Loan Forgiveness (PSLF), except if the borrower chooses to switch out of the income-determined repayment plan. If the borrower switches out of income-determined repayment, any previous payments made under the income-determined repayment plan will not count toward the 120-payment requirement for loan forgiveness.

See also: Which Jobs Qualify for Public Service Loan Forgiveness?

Borrowers in an income-determined repayment plan will be able to self-certify that they are unemployed for the purpose of determining a zero monthly payment, through December 31, 2020. 

The U.S. Department of Education will not be allowed to issue regulations concerning income-determined repayment. 

Other Financial Aid Changes

There are several other financial aid changes in the legislation:

• The legislation allows the payment pause and interest waiver to apply to borrowers who are in an in-school deferment, codifying previous guidance from the U.S. Department of Education.
• CARES Act funding is excluded from the calculation of the expected family contribution (EFC).

The legislation simplifies the documentation of changes in family income for financial aid appeals.

• The legislation allows college financial aid administrators to use professional judgment in 2020-2021 and 2021-2022 to set an independent student’s income earned from work to zero if the student has applied for or received unemployment benefits. It also allows financial aid administrators to base income earned from work for the student, parents and spouse on the “totality of the family’s situation, including consideration of unemployment benefits.” Unemployment documentation must be provided within 90 days of the date of issue.
• The increased use of professional judgment will not cause a college financial aid office to be selected for a program review. Otherwise, college financial aid administrators might hesitate to consider some financial aid appeals. 
• The legislation adds a question to the Free Application for Federal Student Aid (FAFSA) to ask if the applicant (or the applicant’s parents or spouse) has lost significant income earned from work due to the pandemic, but does not change the calculation of the EFC in response to an affirmative answer.

Final Financial Relief Legislation will be Different

Senate Republicans may not have enough votes to pass the HEALS Act on their own, as some Republicans are opposed to spending any more money on COVID-19 relief. They may need support from Democrats to pass the legislation.

Even if this legislation passes, there are significant differences between it and the Heroes Act legislation that passed the U.S. House of Representatives.

The final legislation will probably be somewhere in between the HEALS Act and the Heroes Act, after Democrats and Republicans begin negotiating. 

Extending the payment pause and interest waiver is likely to be included in the final legislation, as such an extension has bipartisan support. For example, the Economic and Student Loan Debt Relief Act of 2020 (H.R. 7114), which was introduced by a Republican, proposes to extend the payment pause and interest waiver through December 31, 2020.