Protecting Student Loan Borrowers and Their Families
By Asha Banerjee
Data show that, in 2018, more than six in ten college seniors carried an average of $29,200 in student loan debt. The unprecedented global coronavirus crisis is taking a financial toll on everyone, but struggling student loan borrowers are particularly at risk. Women and students of color, especially women of color, carry the vast majority of student debt. Given historic inequity, they also disproportionately have low incomes. As schools and businesses shutter, threatening many low-wage workers’ jobs, the pandemic will only exacerbate borrowers’ financial instability. It warrants robust federal action.
While both Congress and the Trump administration recently took different steps for people drowning in student loans, there is more they can and must do.
Congress acts for students, overturning harmful agency rule
On March 12, the U.S. Senate voted 53-42 on a House-passed Congressional Review Act resolution (S.J.Res.56) that overturned U.S. Secretary of Education Betsy DeVos’ 2019 Borrower Defense rule. This bipartisan vote was a victory for all student borrowers, though it is unclear if the president will sign it into law.
The DeVos rule gutted student protections to defend predatory for-profit institutions. It would have made it nearly impossible for student borrowers who had been defrauded by private institutions to receive relief. Defrauded students would have also been prevented from suing together in a class-action. In a press statement issued after the vote, U.S. Senator Dick Durbin (D-IL) pointed out that one in three of all loan defaults originate from for-profit schools who would “take the money and run, leaving students holding the bag.” Out of the 300,000 students applying to the Department of Education (ED) for help, only about 3% actually received any relief. Policymakers must maintain strong protections for borrowers against predatory institutions.
The Trump administration’s response has been inadequate
In response to COVID-19, ED has suspended interest on federal loans. While a small step to assist student borrowers, this response is inadequate. Suspending borrowers’ monthly loan payments altogether would provide the real relief they need. The administration defended their limited response by noting that if borrowers do not make payments, they might not be able to work towards loan forgiveness or repayment plans, such as the Public Service Loan Forgiveness (PSLF) or Income Driven Repayment (IDR) plans.
Federal policymakers must go further to protect student loan borrowers
There are several actions that Congress and the Trump administration can do to help student loan borrowers get through this crisis, including:
- Stopping all involuntary collection of student loans, as other higher education and student borrower protection advocates recommend. This loan enforcement strategy would only undermine borrowers’ economic security, especially during the current crisis.
- Not punishing borrowers if they do not repay their loans during these chaotic months. Borrowers must be able to benefit from their long-term repayment plans (PSLF or IDR). Furthermore, there should be no administrative offsets. For example, if the federal government establishes a universal basic income plan to stimulate the economy, such as sending each American a check for $1000, this should not be offset against student loans.
- Placing a moratorium on student loan payments. With a complete shutdown ahead due to COVID-19, it’s unacceptable to make borrowers repay their loans. Students with low incomes in particular need money now to cover basic needs. This strategy can also serve as an economic stimulus, freeing up money for people to spend in their community, preventing a deeper recession.
- Cancelling student loan debt overall. Bold and far-reaching policies are needed to protect student borrowers who were already struggling before this unexpected global crisis. A pause on payments simply prolongs the problem and pushes it down the road. Student loan debt skyrocketed after the recession of 2008. Debt cancellation and balance reduction by $10,000, as Senators Schumer (D-NY), Murray (D-WA), Brown (D-OH), and Warren (D-MA) have proposed, would be far more impactful.
As the effects of the coronavirus continues to unfold, student loan borrowers will be among those whose economic security suffers most. Students of color and first-generation college students from families with low incomes may be hardest hit. Since community spread of the coronavirus has just begun, Congress must act now and adopt policies that provide relief to these struggling borrowers.