The new stimulus package has one major proposal for your student loans.
Here’s what you need to know—and how it may impact you.
Student Loans: stimulus package
If you’re hoping for student loan forgiveness today or a complete pause of your federal student loans for another six months, you won’t find it in the new $1 trillion stimulus package that Republicans proposed last month. The Heals Act, if passed in its current form, would include the following:
Student Loan Repayment
- Proposal: Sen. Lamar Alexander (R-TN), who chairs the Senate Health, Education, Labor and Pensions Committee, proposed a new student loan repayment plan that, among other things, provides student loan relief to borrowers without income.
- No income, no payment: If you have no income, you would make no federal student loan payments.
- If Income: If you have income, your monthly federal student loan payments would be based on 10% of discretionary income.
Student Loan Forgiveness
- Can I get student loan forgiveness? Under this plan, there is student loan forgiveness, but it won’t be upfront.
- Income-Driven Repayment: Like current income-driven repayment plans, you can receive student loan forgiveness after 20 or 25 years for your federal student loans.
Student Loans: proponents like this
Proponents of Alexander’s plan give several reasons for supporting the proposed legislation.
- Student Loan Relief: First, the stimulus package includes some relief for student loan borrowers, even if it’s less than what many had hoped. The focus on other economic priorities ranging from second stimulus checks to unemployment checks shifted the focus from student loans. Senate Republicans could have scrapped any student loan relief in the Heals Act.
- Struggling Financially: Second, Alexander’s proposal focuses on student borrowers who are struggling financially. The Cares Act, the $2.2 trillion stimulus package that Congress passed in March, focused on most borrowers with federal student loans – regardless of the borrower’s financial situation. In contrast, Alexander’s plan caters to Americans who have no income and therefore can’t make any student loan payments.
- Student Loan Forgiveness: Third, while Alexander’s plan provides no wide-scale student loan forgiveness, borrowers can qualify for federal student loan forgiveness after 20 or 25 years.
- Student Loan Payments: Fourth, like the Cares Act, the months in which a borrower pays $0 in student loan payments will count toward the 20 or 25 years for student loan forgiveness.
- Simpler Repayment: Alexander’s plan would simplify the nine existing federal student loan repayment plans with two options, namely no payments if you have no income or 10% of discretionary income if you have income.
Student Loans: opponents don’t like this
Opponents of Alexander’s plan give several reasons why they object to the proposed legislation.
- Not Enough: First, opponents argue that the student loan relief is a fraction of what Congress passed in the Cares Act. Opponents say that Americans are struggling in the worst economy since the Great Depression. Millions have lost jobs, face potential eviction and are battling the uncertainty of the Covid-19 pandemic. As a result, opponents say that Americans need more immediate student loan relief.
- Cares Act: Opponents want the student loan benefits in the Cares Act extended for one year, from September 30, 2020 to September 30, 2021. This includes pausing all payments for federal student loans, setting interest rates at 0%, halting collection of federal student loan debt and “counting” non-payment of federal student loan debt toward the 120 required monthly payments for public service loan forgiveness.
- Income-Driven Repayment: Third, opponents say that Alexander’s student loan forgiveness proposal is too similar to existing student loan forgiveness that is included in income-driven repayment plans. Democrats may support fewer income-driven repayment plans to avoid confusion and bureaucracy, but they prefer a more innovative approach.
- Student Loan Forgiveness: House Democrats want $10,000 of student loan forgiveness included in the next stimulus. However, when House Democrats passed the Heroes Act, a $3 trillion stimulus package that has not passed the Senate, immediate student loan forgiveness only would apply to borrowers who are struggling financially. Therefore, under the Heroes Act, student loan forgiveness would not be available to every student loan borrower.
How to pay off student loans
Absent an extension from Congress, student loan payments will resume on October 1, 2020. Whether Congress extends the Cares Act or adopts Alexander’s plan, make sure you have your own game plan to pay off student loans. Even if there is student loan relief available, it doesn’t mean that you should ignore your student loans. What’s the best way to start? Start with these four options, all of which have no fees: