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Why Student Debt Forgiveness Is Critical in 2020


Jul. 28 2020, Updated 12:40 p.m. ET

The COVID-19 pandemic has created unprecedented challenges for many people. The crisis has caused a significant downturn in economic activity and record unemployment levels and has disrupted the education system and students’ lives. Students have to adjust to online education, which is the new normal. One topic that has received significant attention is student debt forgiveness.

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Job cuts and financial challenges have made it difficult for students to pay their education loan payments. The CARES (Coronavirus Aid, Relief, and Economic Security) Act gave individuals a break from paying their federal student loan obligations until the end of September. However, the new stimulus bill released on July 27, The HEALS (Health, Economic Assistance, Liability, and Schools) Act, did not extend the payment suspension like millions of student loan borrowers expected.

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The HEALS Act includes a proposal by Tennessee Senator Lamar Alexander. According to the proposal, borrowers will not have to make loan payments while they are unemployed. Even when they attain employment, the payments will be limited to 10 percent after deducting living expenses. Several critics think the proposal is similar to the existing REPAYE (Revised Pay As You Earn) plan. 

Student debt forgiveness amid COVID-19

Student loan borrowers are concerned about meeting their loan obligations after the relief provided under the CARES Act ends on September 30. Several consumer rights groups expected the relief provided under the CARES Act would be extended. They also expected the new stimulus bill would address student debt forgiveness. Job loss amid the coronavirus pandemic has impacted millions of borrowers’ financial position. 

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student debt forgiveness
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Currently, more than 43 million Americans have about $1.67 trillion in student loans. Rising coronavirus cases and economic turmoil could impact individuals’ ability to make their debt payments. 

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Rising concerns regarding student loans

The Institute for College Access & Success issued a statement criticizing the HEALS Act proposed by Senator McConnell. The institute highlighted how the bill does not address the student debt crisis amid the coronavirus pandemic. Also, the institute expressed concerns about the new repayment plan proposed under the HEALS Act. 

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The National Consumer Law Center issued a statement and suggested the steps that Congress should take to address student loan borrowers’ struggles. The statement mentioned how some provisions of the HEROES (Health and Economic Recovery Omnibus Emergency Solutions) Act, passed in May, addressed what the CARES Act missed. However, the National Consumer Law Center thinks that the Senate should take additional measures to protect student loan borrowers. 

How student loan borrowers can survive the COVID-19 crisis

Borrowers can use the income-driven repayment plan under the federal student loan system. The plan allows borrowers to choose from four options based on their income.

  • REPAYE Plan
  • PAYE (Pay As You Earn Repayment) Plan 
  • IBR (Income-Based Repayment) Plan 
  • ICR (Income-Contingent Repayment) Plan 

For example, under the REPAYE plan, the monthly payment is generally 10 percent of the borrower’s discretionary income. Under the income-driven repayment plan, the loan payment could even be zero per month if the borrower’s income is low.

Also, borrowers have the option to defer their student loan payments. In such a case, they might still have to pay the interest accrued during the deferment period. Finally, the Department of Education grants forgiveness, cancellation, or discharge of student debt in various cases. For example, an individual working for a government or non-profit organization may be granted loan forgiveness under the Public Service Loan Forgiveness program after 120 monthly payments are made. 


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