Earlier this month, the House of Representatives passed the HEROES Act, legislation that will provide financial aid to states, some industries, and notably, those with student debt. The bill, which is fully dubbed the Health and Economic Recovery Omnibus Emergency Solutions Act, builds on the previously passed CARES Act in a few areas. But the possibility that coronavirus could cancel some student debt may be the most notable, as Whitney Barkley-Denney, the senior policy counsel at the Center for Responsible Lending, tells Mic that there are 44 million borrowers with student debt living in the United States.
Borrowers in their 20s and 30s in particular are uniquely primed for economic hardship in addition to stress caused by the pandemic: Older millennials graduated into the Great Recession and a fraught housing market, while the youngest millennials, now a couple of years out of college, are trying to break into their chosen fields during a global pandemic. Under the House's version of the HEROES Act, many of these people would experience some sort of debt relief while they try to navigate the crisis.
What is the HEROES Act?
The HEROES Act, sponsored by Democratic Rep. Nita Lowey (N.Y.), is a $3 trillion legislative package slated as a follow-up round of funding to the $2 trillion CARES Act, which was passed in late March. The CARES Act included some provisions to help borrowers with federal loans, but the HEROES Act goes a step further to assist some private borrowers as well.
The HEROES Act provides funding to a number of governing bodies — states, local governments, tribal nations — to help alleviate the costs of the pandemic. Many states have dug into their emergency funds to fund unemployment programs and social safety nets, or to expand essential services, and federal funding will help them to continue to provide these services.
So what does the HEROES Act do for student debt?
A large portion of the credit for furthering the national conversation on student debt forgiveness can be attributed to former presidential candidates Bernie Sanders and Elizabeth Warren. Both senators made some level of forgiveness foundational to their presidential campaigns; in Sanders's case, the forgiveness was universal, while Warren called for a progressive system with a cap for the highest earners.
The HEROES Act expands on the CARES Act's loan forgiveness in three ways: instituting loan forgiveness of $10,000 for some borrowers, changing the timetable for borrowers under the Public Service Loan Forgiveness, and extending pauses on loan payments, explains Dominique Baker, an assistant professor of education policy at Southern Methodist University.
The first area of loan forgiveness — $10,000 of relief — only applies to borrowers with federal or Perkins loans, or a Federal Family Education Loan (FFEL) that is privately held and not actually serviced by the federal government. However, of this group of borrowers, only those considered to be "economically distressed" qualify for the $10,000, says Barkley-Denney. Those who were already paying 0% on their loans or were in default, delinquency, forbearance, or deferment before the coronavirus pandemic started will be able to have up to $10,000 of their debt forgiven.
Part of the trickiness of the FFEL loans in particular, Baker explains to Mic, is that the federal government took on loans that used to be handled by private entities during the first term of the Obama administration. Because of this, she says, borrowers will have to look into what kind of loan they have if received an FFEL loan before the program's end in 2010. If they have an FFEL loan, they're eligible to consolidate their loans, but consolidation doesn't automatically mean that you'll get a lower interest rate.
The HEROES Act would also expand the Public Service Loan Forgiveness (PSLF) program, Baker says. Prior to the coronavirus outbreak, those who qualified for public service loan forgiveness could have their debt forgiven after 10 years of repayment from when they qualified for the program. If you have a federal loan (or what's called a Direct Loan), you're eligible to apply for a PSLF loan, but you must be employed by a governing body or not-for-profit organization and meet four other requirements. But that also means that if someone paid their debt for five years while working in the private sector and then applied for PSLF, they would ultimately make payments for 15 years, because the payments made under the PSLF program would only count when they started the public service job.
Under the HEROES Act, though, these PSLF borrowers would have the option to consolidate their loans, and have their prior years of repayment count toward the overall 10 years. In other words, the proposal is "giving you credit for the time spent paying the loan," Baker says.
The last change the HEROES Act makes for student loan borrowers is extending the time period of authorized nonpayment of debt. This means that a borrower wouldn't have to start paying back or resuming loan payments until Sept. 30, 2021, extended from the Sept. 30, 2020 date originally established by the CARES Act. Barkley-Denney says that while the halt on payments would help all those who qualify for forgiveness, it would disproportionately assist those with the greatest ability to pay off the principle of their debt (that is, the amount before interest). This is because they can continue to chip away at the debt itself while there's 0% interest, as opposed to lower income "struggling" borrowers who "aren't even touching principles" in the first place because so much interest has accrued, Barkley-Denney explains.
Going forward, Barkley-Denney says, Congress should focus on automatically qualifying lower-income borrowers for income-driven repayment programs that would make "sure that they're in payment plans that fit their budget." Adjusting the terms of the loan to better suit a borrower's income status is an effective way of ensuring that they'll be able to pay off the loan without defaulting, even if it happens over a longer period of time, and also without cornering low-income borrowers into choosing between affording loan payments and other expenses.
Who qualifies for HEROES Act student loan forgiveness?
The CARES Act left out about 9 million borrowers, and the HEROES Act takes a step in addressing these people, Barkley-Denney says. Yet those who have debt held by private companies, like banks and other "commercial" agencies, still aren't covered by this legislation.
Moreover, the $10,000 forgiveness would only apply to the most cash-strapped borrowers, and the funds would only pay as much debt is owed. So if you have $7,000 in Direct Loan debt, you don't get to keep the extra $3,000.
Still, forgiving $10,000 of debt for the borrowers who owe the least amount of money would likely have a broad impact, Baker tells Mic, because 34% of those with student debt owe $10,000 or less. These borrowers are also the least likely to be able to pay that debt back, as a significant portion of them might have started a four-year academic program without finishing them, thus accruing the debt without completing the degree that may have enabled them to find higher-earning job opportunities.
Will the HEROES Act pass the Senate?
The term that's getting thrown around is "dead-on-arrival," which basically means House Democrats and political wonks don't believe that the legislation stands a chance of getting passed by the GOP-controlled Senate. Or, they worry, on the off-chance that the legislation is approved, it might be stripped of many of the benefits included in the House's version first. For instance, early drafts of the CARES Act discussed providing a $2,000 check to adults, or consistent monthly payments, and both ideas were shot down by Senate Republicans. (The legislation ultimately included a one-time check of up to $1,200 for certain Americans.)
Democrats in the Senate will argue that what the House Democrats propose in the HEROES Act is both necessary — and already a compromise. While Republicans don't want to increase the national debt, Democrats say they're concerned with the longevity and severity of our current economic crisis, and that assisting student borrowers will help them stay solvent during the pandemic and help the national economic recovery.
Whether or not the HEROES Act passes is dependent on whether legislators want to make an investment now for future economic prosperity, Baker says. Forgiving debt during the pandemic would allow a borrower to focus on other areas of financial concern.
But despite the reluctance of Republican leaders on Capitol Hill to pass this legislation, Barkley-Denney points to a Center for Responsible Lending poll that shows that most Americans are in favor of $20,000 across-the-board loan forgiveness. That's 63% of voters in all regions of the country who believe in permanently reducing debt.
If it will happen actually happen, well, that's another question entirely.