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The Stimulus Fails Student Borrowers. Congress Must Cancel Their Debt.

While colleges can tap into a $14 billion emergency relief fund, millions of their alumni will get no relief at all.

Students and their parents move their belongings from their dormitories at San Diego State University in San Diego, California, on March 18, 2020.

Just before midnight on Wednesday, the Senate passed the long-negotiated $2 trillion stimulus package. The theme of the stimulus overall seems to be that every win for ordinary people is paired with far more wins for companies. And while the package is imaginative when it comes to enormous loan funds for big businesses with few conditions, for the 43 million federal student loan borrowers in the United States, the relief is severely inadequate. There is cash in the bill for colleges and universities, but no federal student loan cancellation for borrowers who attended those schools in the past. In other words, colleges got bailed out, but alumni got sold out.

The bill creates a $14.25 billion higher education emergency relief fund for institutions that were not completely online prior to the coronavirus emergency. Thankfully, schools must use at least half of the funds on its students: for food, housing, health care or other expenses. But the rest of the funds lack any bans on using them for executive bonuses or advertising and marketing. And that’s a real problem since for-profit colleges that were not completely online prior to the pandemic can also access these funds. For-profit colleges are infamous for their horrible student outcomes, series of bankrupt institutions, piles of lawsuits and their targeting of people hardest hit by the last financial crisis. Despite this, their CEOs often make millions, and they spend enormous sums on advertising — and now, some of these schools may use the emergency relief funds to do so.

Contrast this freewheeling approach toward schools with the relief given to students by the bill. The most significant relief is a six-month suspension (through September 30) on some, but not all, federal student loans. According to 2020 data from the National Student Loan Data System, nearly 2 million Perkins borrowers and over 7 million with commercially held or guaranty agency-held FFEL loans will be left out of stimulus relief. For those who are eligible, interest will not accumulate on these federal student loans during those six months (through September 30), and there will be no negative reporting to credit reporting agencies during that time, either. But borrowers’ principal will remain the same — there is no student debt cancellation included in the bill.

One serious problem with this bill is that it doesn’t apply to all federal student loan borrowers, but only those with loans held by the federal government. Most borrowers don’t know what kind of loans they have, but there are several types. Those who borrowed after 2010 will have a Federal Direct Loan, which is held by the federal government. But those with loans prior to that may have a Federal Family Education Loan (FFEL). Some of these are held by the government, but some are held by private companies. Those borrowers with FFEL loans that are privately held will not be eligible for any of the relief: not the six months of suspended payments, nor the waiving of interest, nor the stop on debt collection and wage garnishments. This is going to create an enormous amount of confusion for many student borrowers with older loans, and it will seem unfair and arbitrary. Worse still, it’s coming at a time when borrowers are having extraordinary trouble even reaching their servicers, in part due to them closing some call centers or reducing hours — so those seeking clarity may have trouble finding it from the companies the Department of Education pays to help them.

It’s important to note that the problems with the stimulus package also plague the actions the Trump administration has taken in the last couple of weeks. The Department of Education has used its authority to announce three areas of relief, but they all only apply to federally held loans. First, there was a temporary waiver of interest for those with federally held loans. There was also the ability to suspend payments on federally held loans, but only if you contacted your student loan servicer. Finally, on March 25, the Department of Education announced it would halt involuntary collections for those in default on federally held student loans. None of these measures apply to those with Perkins loans or commercially held FFEL loans, which borrowers may have if they took out loans before 2010.

It didn’t have to be this way. Sen. Elizabeth Warren had a different vision for a stimulus relief package for student loan borrowers: Cancel student debt as an economic stimulus. She outlined this proposal as a part of her grassroots stimulus proposal. Research shows that canceling student loan debt would free up hundreds of extra dollars each month for borrowers — money that could be used for food, supplies and other immediate needs. And it wouldn’t just be a short-term stimulus. Research shows that canceling student debt could not only raise an individual’s income by $3,000 over three years due to increased geographic mobility, it could also boost the economy by up to $108 billion a year.

Warren’s proposal picked up support fast. On March 18, Chair of the House Financial Services Committee Maxine Waters released a series of proposals to help the economy during the coronavirus crisis; included in the proposal was cancelling at least $10,000 in federal student debt for each borrower. The next day, Senate Minority Leader Chuck Schumer joined with Warren and Senators Patty Murray and Sherrod Brown to propose that the government pay borrowers’ student loan bill every month for the duration of the crisis, and then three months after. Their proposal would ensure that by the end, the government had canceled a minimum of $10,000 in federal student debt. Two days later, 14 more senators signed a letter in support of the plan, including Senators Kamala Harris, Jeanne Shaheen, Jack Reed, Dick Durbin and Cory Booker. The next day, former Vice President Joe Biden came out in favor of a minimum $10,000 in federal student loan cancellation, citing Warren’s proposal.

The momentum didn’t stop in the Senate. On the House side, Representatives Ayanna Pressley and Ilhan Omar introduced a bill on March 23 calling for a minimum of $30,000 in federal student loan cancellation. And then, House Speaker Nancy Pelosi included a minimum $10,000 in federal student debt cancellation in the House’s Phase 3 bill, the Take Responsibility for Workers and Families Act.

This is a massive shift for the Democratic Party. We began the Democratic presidential primary with just two candidates talking about canceling student loan debt: Senators Warren and Bernie Sanders, with Warren calling to cancel $50,000 in federal student debt using executive authority, and Sanders proposing to cancel all of it by passing legislation. Now, Democratic leadership in the House and Senate, and former Vice President Biden, have all endorsed canceling student debt as a way to tackle the rapidly escalating economic crisis.

Unlike the stimulus bill, the language in Pelosi’s Take Responsibility for Workers and Families Act would provide relief for federal student loan borrowers regardless of who holds their loans. That language is crucial to fight for in the next round of legislation, given that Pelosi has said there are “more bills to come.” It seems unlikely we will get to that next round quickly, since Senate Majority Leader Mitch McConnell has announced that the Senate is in recess until April 20. But the movement in the Democratic Party on the issue of canceling student debt is stunning — and it could not have come at a more urgent time. Congress has the opportunity to use the language of the Pelosi bill to create a truly effective stimulus for the millions with federal student loans, and a longer-term economic boost for the millions who don’t. They should seize it.

NOTE: This article has been corrected to reflect the number of student borrowers who will be considered ineligible for relief in the stimulus package.

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