Are student loans included in the new stimulus?
Here’s what you need to know.
House Democrats proposed a new $2.2 trillion stimulus package that includes $1,200 second stimulus checks and $600 weekly unemployment benefits. Tucked inside the new stimulus plan, which is a proposal and not yet law, is also relief for your student loans. Here are some highlights:
Defer student loans
In the newly proposed Heroes Act, your federal student loan payments are expected to be deferred through September 30, 2021. What does this mean? The Heroes Act would allow you to stop making student loan payments on your federal student loans only (not private student loans) for another year. This would equate to approximately 18 months without making any federal student loan payments, since federal student loan payments have been paused since March.
No interest accrual on student loans
In addition to pausing payments, the new Heroes Act would not charge any interest on your federal student loan payments through September 30, 2021. Therefore, no new interest would accrue, effectively temporarily reducing your interest rate to 0%.
No collection on defaulted student loan debt
Similarly, the new Heroes Act would postpone collection of defaulted student loan debt through September 31, 2021. This means that your wages, Social Security payments or tax refund could not be garnished during this period to pay off student loans in default.
All federal student loans would be included
Currently, President Donald Trump through executive action provided student loan relief to millions of student loan borrowers through December 31, 2020. This includes pausing federal student loan payments, no new interest accrual on federal student loans and halting the collection of student loan debt for defaulted student loans. However, as defined in the Cares Act—the $2.2 trillion stimulus bill that Congress passed in March—federal student loans doesn’t mean “all federal student loans.” For example, Perkins Loans and FFELP loans are not included. As a result, borrowers with Perkins Loans and FFELP loans don’t benefit from student loan relief if they have these types of student loans. Why? Federal student loan that are covered under this student loan relief only include federal student loan debt owned by the federal government. Perkins Loans are typically held by colleges and universities, while FFELP loans may be held by private investors or financial institutions such as banks. Under the new Heroes Act, if passed, borrowers with FFELP Loans and Perkins Loans would be eligible to receive student loan relief.
Student Loan Forgiveness
Is student loan forgiveness included in the new stimulus package? If Democrats keep the Heroes Act student loan relief the same, only “economically distressed” borrowers would receive up to $10,000 of student loan forgiveness. So, don’t expect widespread student loan forgiveness or student loan debt cancellation if Congress passes the Heroes Act in its current form. Despite various proposals to cancel student loans, House Democrats weakened the provision in the final stimulus bill.
Currently, the new stimulus package is a proposal and Congress has not passed the Heroes Act. Will the Heroes Act become law? Unlikely. Democrats revised the Heroes Act to $2.2 trillion, which is approximately less than the $3 trillion bill they proposed in May. However, Senate Republicans have proposed two stimulus bills, which are substantially smaller. The Heals Act is a $1 trillion stimulus bill, while a “skinny” stimulus bill is $500 billion. Treasury Secretary Steven Mnuchin, who—along with White House Chief of Staff Mark Meadow—is negotiating a potential stimulus bill on behalf of the White House says that Trump could support a $1.5 trillion stimulus package. If so, the Heroes Act, in its current form, is $700 billion over budget. House Democrats could vote on the new Heroes Act this week, but the vote would be largely symbolic. The Senate would likely not vote on the Heroes Act, although the Senate could pass its own separate stimulus bill. Negotiations between Mnuchin, Meadows and Speaker of the House Nancy Pelosi (D-CA) and Senate Minority Leader Chuck Schumer (D-NY) may continue between now and the election on November 3. While a stimulus deal could happen any time, there is no clear sign that consensus can be reached.
How to pay off student loans
Make sure you have a game plan to pay off student loans. Start with these four options, all of which have no fees: