For Student Borrowers, One Bright Spot During Covid-19

For the 200,000 Michiganders who take out federal student loans each year, help is on the way. Thanks to new federal legislation, most student borrowers with federal loans will automatically have their loan repayments suspended through September 30, 2020. No interest will accrue during this time. That means borrowers do not need to make any payments on their loans until October 1, 2020 and will not suffer any financial harm as a result. Their loan balances will not go up. And best of all, they do not need to take any action to receive this help.

With high average college tuition and low state aid for colleges and universities, Michigan has many residents who may need this relief. Tuition at public colleges and universities here is $3,000 higher than the national average. In the 2017-2018 school year, nearly sixty percent of college graduates in Michigan took out loans to afford college. And the state ranks tenth in the country for student debt with students taking out an average of $32,158 in loans.

Borrowers who had been struggling to make their loan payments prior to the coronavirus crisis are getting help too. Those already in default will receive a reprieve through September 30 on attempts to collect student loans. Collection agencies won’t be calling or writing again until October. And, during this time, the federal government will also not be withholding money from tax refunds, Social Security payments, or even the rebate payments that individuals will receive as part of the federal relief bill.

Employers are also required to stop garnishing employee’s wages to pay for overdue student loans, and the U.S. Department of Education should be monitoring employer actions to ensure that they are complying with this requirement. If an employee’s wages are continuing to be garnished, borrowers should contact their employer’s human resources department.

While most federal loans are covered by this legislation, two categories are not: campus-based Perkins loans and older federal loans that are held by commercial lenders. We urge policymakers and the Education Department to address this coverage gap immediately.

The bill’s student loan relief provisions last only six months and fail to address the urgent needs of struggling borrowers that will certainly remain beyond that time period — such as students who were left impoverished by predatory for-profit colleges and who have submitted borrower defense claims left to languish by the Department of Education.

The bill also unfortunately fails to extend benefits to all types of student loans. Older guaranteed FFEL (Federal Family Education Loan Program) debt that is not owned by the federal government and campus-based Perkins loans are excluded from this bill, as are private education loans. Twenty percent of Michigan college graduates took out private loans to pay for college, many without maxing out their federal loans first. Even in good times, private loans offer significantly fewer consumer protections than federal loans, and these protections exist for precisely a moment like this one.

The U.S. Congress and the federal Education Department should act to address this coverage gap immediately, and to extend the relief beyond six months, which almost certainly will not be enough.

Over the long-term, Michigan will need to invest more in making college affordable, so that the state can compete with its neighbors economically and so that its residents can enjoy the benefit of well-paying, high-quality jobs. Over the short term, eligible borrowers can take advantage of federal relief to help keep food on the table and housing over their heads.