Left Out of the Stimulus

Although help for student borrowers in Congress’s massive economic stimulus package has been widely publicized, including a six-month reprieve from making loan payments, more than a million people with loans may be surprised to learn they will not get any relief under the new measure.

Borrowers with Perkins and commercially held Federal Family Education Loans are excluded from the $2 trillion bill, which is expected to pass the U.S. House today after being approved by the Senate Wednesday.

As higher education policy experts pored over the bill over the last few days, several consumer groups said the next relief Congress takes up should include those who won't be reaping new benefits, including a waiver of federal interest on student loans and a moratorium on having overdue payments taken from wages, tax refunds and Social Security benefits, as well as temporarily being excused from making monthly payments.

A Senate Republican fact sheet on the bill said those left out make up 5 percent of all student loan borrowers, which the National Consumer Law Center estimated to be 1.2 million borrowers.

“There’s no reason why they shouldn’t be included,” said Michele Streeter, a policy analyst for the Institute for College Access & Success.

She said excluding certain borrowers will cause confusion. They'll hear about the loan payment deferrals, interest fee waivers and the wage garnishment suspensions that the legislation mandates and think, "I don't know why I'm not getting this," she said.

“This differing treatment based on loan type will create confusion among those with older loans that don’t qualify for the suspension,” said Alexis Goldstein, a senior policy analyst at Americans for Financial Reform, a progressive advocacy group.

“Leaving out borrowers with Perkins and commercially held FFEL loans is fundamentally unfair, and it will be difficult for these borrowers to get answers. Many of these borrowers are already having trouble contacting servicers due to reduced hours and the closing of call centers” as a result of the coronavirus pandemic, Goldstein said.

Scott Buchanan, president of the Student Loan Servicing Alliance, agreed that confused Perkins and FFEL borrowers will swamp loan servicers with calls. As a result, it’s important for those getting the new benefits to be aware that they will get them automatically. However, borrowers who can’t make their payments or who have economic hardships should call their loan servicers, he said.

On Friday, a spokesman for Senator Lamar Alexander, the Tennessee Republican and chairman of the Senate education committee, said students with old FFEL and Perkins loans that are not held by the government can consolidate their loans into the direct loan program.

But Goldstein noted that an Education Department fact sheet on borrowers' options during the crisis warned that once the interest waiver ends, those who consolidated loans could end up paying higher interest than under their old loan programs. Additionally, any accumulated interest would be added to their principal, further increasing the amount they pay in interest.

“The Senate picked winners and losers by giving certain federal student loan borrowers a short break from making payments, from interest accrual and from involuntary collection, but withholding that help from others,” Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, said in a statement.

Education advocates want any new stimulus package proposed to address the disparity between different types of borrowers. Yu's and Goldstein’s groups also continued to urge Congress to cancel at least $10,000 from every federal student loan borrower’s debt, including those with Perkins and FFEL loans, as Senate and House Democrats proposed.

Colleges and universities also want more funding to help them with the cost of dealing with the crisis. Craig Lindwarm, vice president of congressional and governmental affairs at the Association of Public and Land-grant Universities, said the next package needs to strengthen a provision in the most recent bill aimed at discouraging states from cutting higher education funding. The provision requires states to maintain funding in order to receive part of $3 billion grant for governors to use for either K-12 or higher education.

States could seek a waiver from Education Secretary Betsy DeVos if they are in financial crisis. And to determine if they are maintaining a level of spending for higher education, the feds would look at a three-year average for spending. But if, for example, a state increased spending in 2019 and 2020, counting the lower spending in 2017 would lower the three-year average. Indeed, Lindwarm said the three-year average of 48 states is lower than what they are spending on higher education this year.

While the focus of the impact of the bill on borrowers was on the question of debt cancellation, little noticed was a technical provision Senator Patty Murray got into the bill.

Under current regulations for federal Supplemental Educational Opportunity Grants, or SEOG, which institutions give to undergraduates with exceptional financial need, colleges were required to asses students' financial status, taking into account such factors as tuition costs and the expected amount their families can pay, to determine eligibility.

But it was unclear, as campuses close and offer students remote instruction during the pandemic, how the Education Department would view giving grants to help students pay for things such as airline tickets to go home because of campus closures, or to buy computers so they can have access to online instruction, said Robert Shireman, director of higher education excellence and a senior fellow at the Century Foundation, a progressive think tank.

“Schools were afraid the Department of Education in a year or two would do an audit and say you have to return a bunch of money to the federal government,” he said.

But Karen McCarthy, director of policy analysis at the National Association of Student Financial Aid Administrators, said Murray's provision waives the requirement for institutions to calculate the amount of need before giving a student an emergency grant. Another provision also allows institutions to give students up to the amount of a Pell Grant in emergency aid, on top of their grant amount, thus clearing up institutions' uncertainty over how much the institutions could give.

“With the waivers, Congress is basically saying we trust you to use your best judgment on who most needs it,” Shireman said.

Removing the bureaucratic obstacles was important to advocates, because the bill allows institutions to use federal funding allotted for work-study jobs for the SEOG emergency grants. In addition, the legislation gives $14.25 billion to institutions to provide emergency help to students during the outbreak. That money does not carry the same restrictions as the supplemental grants.

“This is an emergency moment when paperwork requirements shouldn’t get in the way of people getting the help they need,” Shireman said.