As concerns continue to grow about the spread of the new coronavirus (COVID-19), policymakers must act to protect those who are most economically vulnerable and to empower them with the financial safety net needed to follow public health precautions. One area where the federal government should act is in ensuring that the federal student loan system does not exacerbate the disaster.
As people become sick, and as the effects of the virus ripple through the economy, the coronavirus is going to make it harder for many student loan borrowers to pay their student loans. Public health experts are calling for people to stay home, practice social distancing, and self-quarantine. While this advice may be necessary in this public health crisis, it poses a great hardship for many people who need to work to cover their basic necessities. Lost income and insufficient paid leave will hurt people who work in the gig economy, are hourly workers, or have childcare crises and coverage concerns (especially as schools and daycare centers close). The U.S. Bureau of Labor Statistics shows that less than a third of those in the lowest income band have access to paid sick leave. Given this, the student debt crisis is a public health crisis and demonstrates why policymakers need to implement widespread debt cancellation.
In the meantime, if we want to ensure that people take the necessary precautions to stem this global health crisis then we need to alleviate the economic pressures keeping people from participating in such precautions. If the draconian consequences of missing student loan payments force student loan borrowers to keep working when they are ill, the virus will spread even more rapidly. As the situation worsens, we also need to ensure that low-income and vulnerable populations are protected as much as possible from the economic fall out. For these reasons, policymakers urgently need to:
- Put a moratorium on student loan payments. Lenders and the Department of Education should excuse all borrowers from making student loan payments while we have an ongoing public health emergency. Once borrowers who are in an income-driven repayment (IDR) or standard ten-year plan resume payments, the months spent under the moratorium should be credited towards either IDR or PSLF forgiveness. During this time, lenders and the Department of Education should also stop interest accrual and capitalization, so that student debt does not further balloon as a result of the crisis.
- Critically, all involuntary collection of student loans, meaning wage garnishment, social security offset, and tax refund offset must cease immediately. Borrowers facing involuntary collection are typically those who are already the most financially strained. They are among the most financially vulnerable to the impact of the coronavirus and the associated precautionary measures, and it is essential that the government not seize their limited money needed to cover essentials during this time of crisis.
What can borrowers do in the meantime:
It is important to act quickly. With just two calls or a few clicks of a mouse, you may be able to avoid making payments you cannot afford, or going into default and facing expensive collection fees, garnishments, and a negative mark on your credit report. Here’s how:
- How to Get Temporary Relief—Ask for a Deferment or Forbearance
This is the fastest solution for staying current on a federal loan when you can’t make payments. However, it is only temporary and your loan balance will continue to increase. Also, time spent in a deferment or forbearance may not count towards eventual public service or income-driven repayment forgiveness.
- How to Get Long-Term Relief—Reduce Your Payments to Fit Your Income.
Adjusting your payments through an “income-driven repayment plan” requires paperwork, but can potentially be done quickly online. It may be a better solution than a temporary forbearance because the lower payment amount would last for 12 months (after which you can reapply) and you could be “earning time” toward eventual forgiveness of your loans.
- Already in default?
You should review the ways to repay as a way to get out of default on federal loans. You should also review the various federal loan cancellation options to see if any apply to you. Even if you choose not to pursue avenues out of default, you have the right to fight back against debt collection agency harassment or abuse.
- Have private student loans?
If you are struggling to pay private student loans right now, ask your lender whether it offers any relief options.
- Watch out for auto-debit!
If you have set up auto-debit payments for your student loans, then payments may continue to be withdrawn from your bank account automatically – whether or not you have the money. You can cancel the auto-debit by contacting your servicer and re-establish it later.