Senate Republicans released their stimulus package yesterday.
Here’s what you need to know.
Senate Majority Leader Mitch McConnell (R-KY) and multiple senators introduced the Heals Act (Health, Economic Assistance Liability Protection & Schools Act), a ~$1 trillion stimulus package proposal. The stimulus package includes, among other initiatives, second stimulus checks, unemployment benefits, school funding and more Payment Protection Program (PPP) funding. The Heals Act also includes some student loan relief, but not what you may think. Let’s dive in.
Student Loans: what’s in the new stimulus?
If you’re expecting significant student loan relief, you won’t find it inside the new stimulus. Here’s what Senate Republicans proposed for your student loans:
No Student Loan Payments
- If you have no income, you would make no student loan payments.
Student Loan Repayment
- If you have income, your monthly student loan payments would be based on 10% of discretionary income.
Student Loan Forgiveness
- Like current income-driven repayment plans, you can receive student loan forgiveness after 20 or 25 years.
- Like the Cares Act (the $2.2 trillion stimulus package), the months in which you pay $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. Alexander’s plan would replace the nine current student loan repayment plans with these two options (no payments or 10% of discretionary income), and thereby provide simpler student loan repayment.
Your student loan benefits could end September 30, 2020
The Cares Act provides multiple benefits for your student loans, including:
- pause all payments for federal student loans
- set interest rates at 0%, so interest will not accrue on your federal student loans
- halt collection of federal student loan debt
- “count” non-payment of federal student loan debt 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 your student loan payments would resume as early as October 1, 2020. Will your student loan benefits from the Cares Act end on September 30, 2020? It’s too early to tell, but based on the Heals Act, the answer could be yes. There doesn’t appear to be a proposal in the Republican stimulus package to extend these student loan benefits beyond September 30.
Will I get student loan forgiveness?
Like the Cares Act, the Heals Act does not include outright student loan forgiveness. There is student loan forgiveness through an income-driven repayment plan after 20 or 25 years (similar to current income-driven repayment plans), but nothing that would cancel student loan debt today. House Democrats proposed in the Heroes Act — the $3 trillion stimulus bill that passed the House, but not the Senate — $10,000 of student loan forgiveness for borrowers who are struggling financially. However, student loan forgiveness doesn’t appear in the Heals Act. Senators such as Sen. Elizabeth Warren (D-MA) have called for student loan forgiveness for 95% of Americans, and also supported other congressional proposals to forgive $10,000 of student loan debt. Student Debt Crisis, a student loan advocacy non-profit, recently sent Warren a petition signed by 1.2 million people calling for student loan forgiveness. Former Vice President Joe Biden proposed a Covid-19 student loan forgiveness plan to cancel up to $10,000 in student loan debt for each borrower. Biden would forgive all undergraduate tuition from two- and four-year public colleges and universities. Biden also would forgive all undergraduate tuition for borrowers who earn $125,000 or less per year and who graduate from a private Historically Black Colleges and Universities (HBCU’s) and Minority-Serving Institutions (MSI’s).
In the Heroes Act, Democrats want to extend student loan relief in the Cares Act for one year, through September 30, 2021. Senate Republicans were willing to agree to student loan relief in March, but now they believe the economy is on relatively stronger footing than during the beginning of the Covid-19 pandemic. Democrats disagree, and argue that more than 40 million Americans have filed for unemployment benefits and need financial assistance in one of the worst economic environments since the Great Depression. Based on 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. If not, Congress begins summer recess on August 8 and does not return until September 8.
How to pay off student loans
If Congress adopts this student loan proposal, make sure you’re prepared. If the Cares Act student loan relief is not extended beyond September 30, then your student loan payments could resume starting October 1. 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
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