Critical Protections Congress Should Provide to Vulnerable Student Loan Borrowers in the Next Coronavirus Package

This week, Congress is ramping up its debate about what protections it should extend as student loan borrowers continue to weather the Coronavirus crisis. These protections cannot come soon enough; on August 1, borrowers will begin to receive notices that the relief provided by the ‘‘Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’ will expire on September 30, 2020. Congress must take steps now to ensure that vulnerable student loan borrowers are not thrown into financial turmoil by being forced to make payments on their federal student loan debts during and in the aftermath of the pandemic. 

The House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act earlier this summer. That legislation proposed a number of important student loan protections that borrowers desperately need and were missing from the CARES Act. For example, it would:

• Extend CARES Act protections until September 2021 or later;
• Extend CARES Act protections to commercially held FFEL, HEAL, and Perkins loans;
• Fully discharge the federal student loan debt of borrowers who attended certain Corinthian and ITT programs.

Initial versions of the HEROES Act also provided $10,000 of federal student loan and $10,000 of private student loan cancellation. However, it was later amended to provide debt relief only to a limited subset of borrowers who were deemed “economically distressed borrowers” on March 12, 2020. Critically, the revision left out borrowers who were economically distressed as a result of the pandemic.   

While the HEROES Act would be a marked improvement from the protections the CARES Act provided, borrowers urgently need more to weather the Coronavirus crisis and ensure financial success when repayment begins again. As the Senate is negotiating what relief it should provide student loan borrowers, it should consider the following essential protections.   

INTERVENTIONS NEEDED TO TRIAGE BORROWERS’ IMMEDIATE FINANCIAL HARDSHIP:

1. As proposed in the HEROES Act, extend the payment suspension and make sure any relief is provided to all federal student loan borrowers–including commercially held FFEL, HEAL, and Perkins borrowers. 
2. Reimburse all students whose tax refunds for tax year 2019 were seized to repay student loans. The Education Department stopped seizing tax refunds and issued reimbursements for any borrowers who filed federal tax returns on or after March 13, 2020, but did nothing for those borrowers who happened to file their returns earlier in the year. The Department’s seizure of the Earned Income Tax Credit, which is paid as part of a worker’s tax refund and is intended to help lift working families out of poverty, has caused particular hardship for many borrowers. Congress should also make sure that any reimbursements are not subject to other collection efforts like bank account garnishment.
3. Provide automatic closed school discharges for students from non-profit, for-profit, or public institutions. In this time of employment and higher education institutional insecurity, Congress should ensure that all borrowers are eligible for automatic closed school discharges–not just those who attended non-profit schools–and only require borrowers to wait for a year before their federal student loans are automatically discharged (as opposed to what was proposed in the HEROES Act). Further, Congress should fully restore GI Bill eligibility for veterans whose schools close before they can complete their program. The closed school discharge program should also be extended to include borrowers whose schools discontinue or cancel their academic programs before students can complete them. 
4. Allow students to discharge student loans in bankruptcy. Borrowers are facing an unprecedented economic crisis and many will find that they are underwater with debt. Borrowers should be permitted to discharge their debt in bankruptcy so that their student loans do not financially handicap them for decades. 
5. Make sure all borrowers are able to get out of default in order to fully access the relief offered in the CARES Act and the next Coronavirus package.

RELIEF NEEDED TO ENSURE STUDENT LOAN BORROWERS RECOVER FINANCIALLY FROM THE PANDEMIC:

1. Provide debt relief for all. Congress should provide private and federal loan cancellation for all borrowers. The country is facing a student debt crisis and should take steps to mitigate the damage the crisis will cause to borrowers. 
2. Restore the statute of limitations on federal student loans. Borrowers who took out loans when they were 17 to access an education that never paid off for them should not have those debts follow them to the grave.
3. Protect vital safety net programs from seizure by permanently banning wage, tax refund, and Social Security garnishments. Borrowers should not have to lose their housing, forgo medical care, or go hungry because their federal student loan is in default, especially as borrowers and their families are facing the threat of the Coronavirus. At the very least, Congress should pass legislation to make sure that critical income sources, like Social Security retirement and disability benefits, Earned Income Tax Credits, and others, are not seized to pay defaulted student loan debt, now or ever. 
4. Keep borrowers who lost work because of the Coronavirus on track for loan forgiveness. Congress should intervene so that borrowers are not ineligible for loan relief programs, like Public Service Loan Forgiveness, because their work is reduced due to the Coronavirus, as many health care professionals and K-12 education staff have experienced. 
5. Implement other post-suspension relief such as auto-enrolling borrowers in an income-driven repayment plan (IDR) if they become delinquent after the suspension of payments ends and providing a $0 payment level until their 2020 tax-year income tax information is available. This will ensure that payment calculations are based upon the most accurate income information. Additionally, Congress should improve IDR so that is truly affordable for all borrowers.

Borrowers are facing more uncertainty than ever before. As the United States faces a resurgence of Coronavirus cases, many borrowers’ health, employment, and financial wellbeing are in freefall. Congress has the power to extend immediate relief to those who need it most by implementing critical protections for student loan borrowers. It should act immediately to prevent borrowers and their families from needlessly suffering and ensure that they can recover along with the economy when the pandemic subsides.