If you’re hoping for student loan relief or student loan forgiveness, you may not find it in the new stimulus package.
Here’s what you need to know.
Senate Majority Leader Mitch McConnell (R-KY) is expected to introduce his proposal for the new stimulus package as early as Monday. According to a draft of the latest stimulus package reviewed by the New York Times, the stimulus package doesn’t include any mention of student loans. This includes any extension of the student loan relief in the Cares Act or any student loan forgiveness. While proposals and numbers can change as both parties create a bill, it’s increasingly unlikely that student loans will be part of the new stimulus. Of course, this may change before a final stimulus package is approved.
Student loan benefits could end September 30, 2020
Congress passed the Cares Act — the $2.2 trillion financial stimulus package — which provided multiple benefits for your student loans, including:
- Congress paused all payments for federal student loans through September 30, 2020.
- Congress also set interest rates at 0%, so interest will not accrue on your federal student loans during this period.
- Congress halted collection of federal student loan debt during this period.
- Congress allowed non-payment of federal student loan debt during this period to “count” toward the 120 required monthly payments for public service loan forgiveness.
Absent an extension, these student loan benefits will expire on September 30, 2020. This means that student loan payments would resume as early as October 1, 2020. The Cares Act also did not include any student loan forgiveness. Similarly, the new stimulus package proposal likely will not include any student loan forgiveness either. House Democrats supported $10,000 of student loan forgiveness for borrowers who are struggling financially, but that provision in the Heroes Act — the $3 trillion stimulus bill that Democrats passed in the House of Representatives — hasn’t become law.
What is included in the new stimulus package?
While student loans may not be part of the stimulus package, this doesn’t mean that you won’t receive any economic relief. Second stimulus checks are expected to be included in the new stimulus package. Treasury Secretary Steven Mnuchin has confirmed that there will be second stimulus checks of $1,200 for each individual. The criteria to receive a second stimulus check would be the same as the first stimulus check. If you earned less than $75,000 (individuals) or $150,000 (married/joint filers), you would receive a $1,200 second stimulus check. The first stimulus check phased out by $5 for every $100 of adjusted gross income above those income limits until $99,000 of adjusted gross income for individuals and $198,000 for married/joint filers. The good news is that Democrats also support a $1,200 second stimulus check, which may mean it’s more likely that second stimulus checks are confirmed for the new stimulus. The new stimulus package that McConnell will introduce also reportedly includes an extension of unemployment benefits, which are set to expire tomorrow, $105 billion to reopen schools, 5-year liability protection for businesses, an extension of Payment Protection Program (PPP) loans, an employee retention tax credit, and other stimuli.
Proposal: No student loan payments if you have no income
Earlier this week, Sen. Lamar Alexander (R-TN) proposed a new student loan repayment plan in which student loan borrowers with no income would make no student loan payments. Alexander also proposed that monthly student loan payments would be based on 10% of discretionary income once a borrower earns income again. Like current income-driven repayment plans, a borrower could receive student loan forgiveness after 20 or 25 years. Plus, the months where you paid $0 will count toward the 20 or 25 years for student loan forgiveness. Alexander’s plan would apply to both existing and new student loan borrowers, and likely is limited to federal student loans only. If passed by Congress, Alexander’s plan likely would replace the nine current student loan repayment plans with these two options (no payments or 10% of discretionary income). It’s unclear whether Alexander’s plan would be included in the new stimulus proposal — and therefore replace the Cares Act student loan relief — or if it is standalone legislation.
After Republicans formally propose their stimulus package, it’s possible that proposals and numbers can change. Student loan relief — either an extension of the Cares Act student loan relief or any student loan forgiveness — don’t appear in the draft stimulus package. Democrats have supported extending student loan relief for one year and including at $10,000 of student loan forgiveness for borrowers who are struggling financially. Unless Congress reaches consensus, it’s looking like there may not be an extension of these student loan benefits. If consensus on student loan relief is reached, don’t expect student loan forgiveness in the next stimulus bill. Also, don’t expect the extension of the Cares Act benefits to last beyond December 31, 2020. Congress has limited time before summer recess begins after August 7, so Congress will follow this key timeline for the new stimulus. Congress likely will finalize the next stimulus package by August 7, but it’s also possible Congress doesn’t reach consensus by then.
How to pay off student loans
If Congress doesn’t include any student loan relief in the new stimulus, be prepared. If you haven’t paid student loans since March, now is the time to get ready. Make sure you understand your student loan payments could resume starting October 1 if there is no extension. Make sure you have a game plan to pay off student loans. What’s the best way to start? Start with these four options, all of which have no fees:
Resources: Student Loans
15 secrets to refinance student loans
5 student loan changes for 2020
Second stimulus checks: your questions answered
What Trump and Biden think about your student loans
Second stimulus checks: your questions answered
Trump wants at least $2 trillion for next stimulus
5 ways to get student loan forgiveness
Navient settles lawsuit — what it means for your student loans
Student loan refinancing rates are incredibly cheap