From The Washington Post to CNBC, experts are talking about how Congress might carve out another $3 trillion to help struggling Americans.
The HEROES Act easily passed the Democratic-led House and now lands in a skeptical Senate.
It’s most novel feature is how it treats private student loans. For what might be the first time, experts say Congress is proposing to make direct payments to banks and other private institutions that wrote loans to college students.
The CARES Act allowed federal loan borrowers to hold off making payments until September 30. The HEROES Act extends that for another year – in addition to $45 billion for student loan forgiveness.
Republican Senators may have called the bill “dead on arrival.” [1] But this is a sign of increasing focus on student loan reform, according to experts Debt.com spoke with.
Can the government come to the rescue?
In 2019, Elizabeth Warren spearheaded the Student Loan Debt Relief Act, which proposed to cancel $50,000 in student loan debt for students with a household income under $10,000.
That bill pushed to cancel private loans. But it never mentions paying a chunk of debt and has yet to pass the House, according to Michael Lux, founder of The Student Loan Sherpa, a website for borrower education and student loan advocacy. [2]
“As far as actual legislation goes, [student loans] have not really been addressed, certainly not in terms of relief,” Lux said. “Addressing private loans would be a big step forward if Congress were to do it.”
The federal government controls 43 million student loans, so it can postpone those payments whenever it wants. But it’s different for private loans.
Debt.com can connect you with an accredited student loan relief specialist that can help you review your options.
Can the federal government tell private companies what to do?
That’s where it gets complex, says Logan Allec, a California CPA and owner of the debt help site MoneyDoneRight. [3]
Allec said in a YouTube video last week with more than 100,000 views that federal loans would be forgiven. But with private loans, the U.S. Treasury would make payments toward the debt while boosting the borrower’s credit. [4]
“The government can’t just go in and say, ‘Zap these loans to a private lender,’” the CPA said. “You got to write off their balance by $10,000.”
Not all borrowers will qualify. The bill has a caveat: to opt-in, the borrower must be “economically distressed.” You must meet the following criteria as of March 12:
- Pay $0 a month on their loans through an income-based repayment plan
- Default by 270 days or in delinquency 90 days
- In forbearance or deferment
The mechanics of the act is another concern, according to University of Florida political science professor Beth Rosenson.
She suggests the government wants to make direct payments to avoid fees and corruption from a third-party.
In order to make this program happen, the U.S. Treasury would have to hire hundreds or thousands of new workers to meet the new need.
“Someone’s got to review [the applications] and the conditions,” Rosenson said.
May not be the “hero” we need
Steve Rhode, a consumer debt expert and founder blog Get Out of Debt Guy, has little faith in the bill eliminating the growing student debt crisis. [5]
There are 45 million Americans struggling with student loan debt – owing an average $37,000 per person. The price of college is rising eight times faster than the average wage.
“Paying off $10,000 worth of student loan debt may be attractive,” Rhode said. “It sounds cute, but it’s not going to make any difference.”
Rhode feels recent stimulus legislation is only treating the symptoms of a larger disease. Cutting a chunk of consumer debt doesn’t increase spending to stimulate the economy.
“The HEROES Act is half a drop in the bucket,” Rhode said. “We have to figure out how we’re going to tackle this whole issue of student debt rather than just reacting to this situation.”
