Evaluate the effect of the CARES law on student loans


• The CARES (Coronavirus Aid, Relief, and Economic Security) law provides for the deferral of payment of principal and interest on federal student loans for six months.
• The law only grants loan forgiveness to students who have withdrawn or will withdraw due to the coronavirus pandemic. Depending on the type of loan, the amount can vary from around $ 2,000 to $ 10,000.
• Senate Democrats lobbied for a loan forgiveness of at least $ 10,000 for all federal student loan holders, but these provisions were not included.

The recently introduced Senate CARES (Coronavirus Aid, Relief, and Economic Security) law provides temporary student loan relief to federal student loan borrowers to help them cope with the economic hardships of COVID-19. The measure will temporarily suspend principal and interest payments for Federal Direct and Federal Family Education (FFEL) loans for six months. It currently only cancels loans for a specific semester in which a student withdrew from enrollment due to the pandemic.

Suspended principal and interest payments
On March 13, the Trump administration announced that it would temporarily waive interest payments on federal student loans for about a month. This proposal would have continued to require payment of the principal on these loans. The CARES law goes further by temporarily suspending the principal, in addition to interest payments, on federal direct and FFELs for six months. All students benefiting from these types of loans would benefit from an automatic six-month deferral. No interest would accrue and the Department of Education would treat those six months as if the licensee had continued to make payments.

In the first quarter (Q1) of 2020, there are approximately 35 million direct loan holders with balances totaling approximately $ 1.3 trillion. About 12 million are holders of FFELs with balances totaling about 250 billion dollars. In 2018, the federal government received approximately $ 20 billion in interest payments out of a total of $ 80 billion in overall student loan repayments. Under the CARES Act, about $ 40 billion in total reimbursement to the federal government would be delayed for up to six months.

Cancellation of the balance
The CARES Act currently contains very narrow provisions for canceling outstanding student debt. The cancellation would force students to withdraw from college due to the pandemic, and the portion of their outstanding loan balances for that particular semester would be canceled. Depending on the type of loan and the student, this amount can range from $ 2,000 to $ 10,000. Most of the students continued their university enrollment by participating in distance online courses. It is difficult to estimate the number of students who have withdrawn or will withdraw from classes during the emergency, but this number will likely be low given the move to online classes.

On March 21, Senate Democrats wrote a letter to their colleagues asking for the cancellation of up to $ 10,000 in outstanding balances for each holder of federal student loans, regardless of enrollment status. With such a provision, nearly a third of the total outstanding debt on all federal student loans would be forgiven. In its current form, however, the CARES Act does not contain this measure.

As it stands, the CARES Act will provide student debt relief in the form of suspended federal loan payments for six months for most students. Loan cancellation will only apply to students who have withdrawn from enrollment due to the pandemic. The CARES Act expands the Trump administration’s earlier proposal to freeze interest on federal student loans, but stops before the Democratic proposal to write off at least $ 10,000 in outstanding balances for all federal loan holders, which regardless of the registration status.

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