40 million Americans face student loan cliff

The federal government’s emergency relief for more than 40 million student loan borrowers is set to expire at the end of September, amid sky-high levels of unemployment and an overall economy still stifled by rising coronavirus cases.

The looming end of the benefits also comes with a clear political dilemma in an election year: Unless Congress or the Trump administration intervenes, the Education Department will demand monthly loan payments from tens of millions of borrowers in October, just before they head to the polls. The department is already preparing to send warnings to borrowers, starting Aug. 15, about the expiration of their benefits, according to people familiar with the plan.

“People have now priced into their family finances not having to make a student loan payment during this crisis,” said Mike Pierce, who worked on student loan policy at the Consumer Financial Protection Bureau during the Obama administration. “Restarting these payments six weeks before the election seems like a fast way to alienate tens of millions of voters with student loans.”

Both Republicans and Democrats have touted the student loan relief, which was included in the CARES Act in March, to their constituents over the past several months. But it’s not yet clear whether they will come to a bipartisan agreement in the coming weeks on what to do when the sweeping reprieve for borrowers comes to an end.

Congress is now debating ways to avert the student loan cliff in October as it begins negotiating another economic rescue package. Lawmakers are already poised to blow past deadlines to extend other benefits in the CARES Act, such as expanded unemployment payments and protections from housing evictions.

The expiration of the student loan benefits hasn’t been as prominent in the debate over the next stimulus bill — and it’s far from clear whether or how both parties would come to an agreement.

Democrats are pushing an expansion and extension of student loan benefits as well as a more ambitious plan to outright cancel up to $10,000 per borrower — a policy that has increasingly become a rallying cry in the progressive wing of the party.

The House-passed $3 trillion stimulus package from May would continue the suspension of federal student loan payments for another year, expanding the relief to millions of federally backed but privately held loans that were excluded from the CARES Act. The Democrats' stimulus bill also calls for keeping the interest rate on student loans at 0 percent for at least another year, with a built-in trigger to automatically continue that benefit until unemployment improves.

Republicans, meanwhile, are wary of the cost of student debt cancellation and are instead focused on continuing loan deferments, but only for some borrowers.

“In less than three months, 43 million student loan borrowers will be required by law to begin monthly payments again on their loans,” Sen. Lamar Alexander (R-Tenn.) said on the Senate floor this week. “Many of those borrowers won’t be able to afford those payments.”

Alexander, who chairs the Senate education committee, said his proposal to address the expiring benefits would be included as part of the GOP stimulus bill. His plan calls for simplifying the federal government’s existing array of income-based repayment options, which has long been a priority of his.

Alexander pitched the plan to reporters this week as “an extension of the deferment of monthly student loan payments until students have an income.” But his plan does not extend the CARES Act student loan relief itself. Alexander said his goal was to “change the system for paying back student loans so that you never have to pay more than 10 percent of your income — after you deduct rent and food — on student loans."

Under those existing repayment options — and under Alexander’s plan — a borrower who has no income would not be required to make a monthly payment, though interest on the debt would continue to accrue. “We’ll have a system of no income, no monthly payments,” the Tennessee Republican said.

But Democrats are already turning down Alexander’s proposal. Sen. Patty Murray, the top Democrat on the Senate education committee, panned Alexander’s plan as an “unworkable proposal” that would “reduce benefits for struggling borrowers in the middle of a pandemic and recession.”

“September 30th is just around the corner— any future COVID relief bill must extend a pause on payments for all borrowers as our country continues to weather this storm,” Murray (D-Wash.) said in a statement.

A remaining unknown looming over the negotiations is whether the Trump administration would take executive action to extend relief to federal student loan borrowers. Existing federal education law gives the secretary of Education expanded powers to change the terms of federal student loans during a declared national emergency.

President Donald Trump in March moved swiftly to use executive action to suspend interest on most federal student loans as the country first began locking down. Education Secretary Betsy DeVos also used her own powers to order a temporary halt to the collection of defaulted federal loans. Congress soon codified those benefit into the CARES Act and also went a step further in suspending most monthly student loan payments for roughly six months.

But it’s not clear whether the Trump administration would again use executive action to avert the student loan cliff. The White House emphasized in a statement that it’s focused on pushing legislative action on the issue.

“President Trump has provided much-needed relief to students and families with student loan debt both through executive action and legislation, and he is committed to working with Congress to help those affected by this virus with meaningful assistance, not bailouts,” White House spokesperson Judd Deere said in a statement to POLITICO.

An Education Department official said the agency had not yet made any decision about a potential extension of the benefits. “The Department is still assessing its options and is focused on doing the next right thing for students, borrowers, and taxpayers,” department spokesperson Angela Morabito said in a statement.

Roughly 40 million borrowers are covered by the student loan relief that’s expiring. Consumer and student advocacy groups have been pushing Congress to extend and expand the student loan relief, warning that the loss of benefits could lead to a jump in delinquencies and defaults.

“We should be talking not about whether to extend — but how long to extend” the benefits, said Whitney Barkley-Denney, a senior policy counsel who works on student debt issues at the Center for Responsible Lending.

“We seem to be dealing in this fictional universe where Covid is getting better and not worse, and unemployment is getting better and not worse,” she said. “The idea that we’re ready to return to payments as usual is baffling to me.”

Pierce, the former Obama-era CFPB official who now directs policy at the Student Borrower Protection Center, said that while much of Congress has been “rightfully focused on the unemployment extension,” the student loan relief expiration also presents “an enormous economic cliff.”

If the CARES Act benefits aren’t extended, Pierce said, “millions of student loan borrowers in the middle of the recession are going to fall behind, they’re going to default, and damage their credit and face enormous economic consequences downstream.”

While Americans with less education are still far more likely to be unemployed, job loss spiked from about 2 percent in March to 8 percent in April for workers who have at least earned a bachelor’s degree. About 7 percent of those degree-holders are still out of work, according to the Department of Labor’s latest monthly tally.

Some Democrats are again seeking to include up to $10,000 of debt cancellation in the next stimulus. Sen. Elizabeth Warren (D-Mass.) has been pushing the plan, which presumptive Democratic presidential nominee Joe Biden has also endorsed. Democrats are considering including the idea in their party platform.

House leaders narrowed their loan forgiveness provisions in their own stimulus bill this year, citing concerns about cost — a last-minute revision that angered progressives. Under the plan the House passed, only borrowers who are considered to be “economically distressed” would qualify for relief rather than all borrowers.

But outright cancellation of debt, as many Democrats are proposing, remains a tough sell among GOP lawmakers and Democrats from more conservative-leaning districts.

A House vote this month on an amendment that would cancel $10,000 per borrower of private student loans provides a test case. The proposal by Rep. Madeleine Dean (D-Pa.) won only two Republican votes and 15 votes of opposition from Democrats.

But the expansion of the pause on monthly student loan payment and zero-percent interest benefits enjoys much broader bipartisan support. A separate amendment by Rep. Alma Adams (D-N.C.) that would extend that relief for private loan borrowers for another year was adopted by the House on a voice vote. Both amendments were tacked onto the House’s version of the annual defense policy bill and face an uncertain future as the chamber has to hammer out its differences with the Senate.

In addition, there is growing bipartisan interest in extending the CARES Act student loan benefits to a subset of millions of federal borrowers who weren’t covered by the law. As many as 9 million borrowers who have federally backed loans held by private lenders or their college were excluded from the benefits.

In the House, Rep. Elise Stefanik (R-N.Y.), a close ally of Trump, has partnered with Democrats in sponsoring two bills that would expand the student loan benefits to all federal borrowers. In the Senate, Jack Reed (D-R.I.) and Lisa Murkowski (R-Alaska) unveiled a similar plan this month to close the discrepancy between how different types of federal student loan borrowers are treated an expand the benefits retroactively.

“This legislation is one component of what should be a comprehensive package of student loan debt relief,” Reed said on the Senate floor in unveiling the plan. “As the crisis continues, we should extend the repayment relief until health and economic conditions improve sufficiently for borrowers to be able to begin repayment.”