Will Trump's Promise Really Help Borrowers?

Three days after President Trump announced he is waiving the interest on federal student loans “to help students and their families” during the coronavirus crisis, the Education Department hasn’t released any details about the plan, leaving unanswered questions about whether borrowers’ monthly payments will actually go down and if the president even has the authority to make such a decision.

While waiving interest might help borrowers in the long term, it won't do much to help those who’ve lost their jobs during the crisis if they still have to pay the same amount every month, said Ben Miller, vice president for postsecondary education at the liberal think tank the Center for American Progress.

Miller noted that if borrowers request forbearance, interest would normally still accrue on their unsubsidized loans. So they’d benefit if they do not have to pay the interest, either, he said. However, their monthly payments would only go down if the loan servicers recalculate borrowers' payment amounts, said Miller and other experts such as Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators.

What‘s unclear, Draeger said, is if servicers will be told under Trump’s order to automatically recalculate the loan payments, or even if borrowers will be able to ask that their payments be lowered. But he and other policy experts said they’ve heard rumors that the monthly amount due won’t automatically be lowered.

Education Department spokeswoman Angela Morabito reiterated on Monday what she’s said since Trump made the surprise announcement Friday while declaring a national coronavirus emergency.

"We are finalizing the details and will share them as soon as they are available," she said.

Scott Buchanan, president of the Student Loan Servicing Alliance, said Monday that it's his understanding that the intent of Trump's order is to lower interest, not monthly payment amounts. He said the group is discussing how to avoid any unintended consequences in implementing the policy.

“They’re sort of building the airplane while it’s in the air,” Draeger said.

Buchanan said borrowers facing financial problems because of the crisis have options to lower their monthly payments, including seeking hardship deferments, and those on income-driven repayment plans can get adjustments if their wages go down. But others, like Miller, say not all borrowers in need will qualify for those options, and they do not work for everybody.

Miller said the administration should instead simply pause requiring payments or automatically recalculate the debt so borrowers will have extra money to weather the storm -- “whichever one creates the least confusion and annoyance. There’s going to be a lot of annoyance that ‘my payment amount hasn’t changed.’”

The lack of detail thus far has drawn criticism.

“Although more (really, any) details are expected to come over the next few days, this measure can reliably be dismissed as a PR stunt and nothing that will provide any economic stimulus or relief,” Thomas Wade, director of financial services policy at the center-right think tank American Action Forum, wrote in a blog post on Monday.

Based on what’s been announced, “an interest waiver doesn't go far enough to help borrowers since it doesn't really impact their monthly payments,” said Michele Streeter, an external affairs and policy analyst at the Institute for College Access and Success. “We don't have details from ED on how this is going to be implemented and how it's going to be communicated to borrowers,” she said in an email.

Draeger said the administration may have been thinking, “what can we do in the immediate future, [that doesn't require a change in processes] and is fast and easy.”

But since Friday, as the coronavirus crisis worsened and federal health authorities added new travel and other restrictions, Draeger said, “the whole world might have changed, and the calculus might have changed for how to implement the interest waiver.”

There are more considerations if monthly payments are reduced, he said. Some borrowers may want to keep paying more. And when the required monthly payments eventually go back up, how will the administration protect borrowers from the blow?

Several commentators, like Wade, questioned if Trump even has the authority to waive the interest on direct loans. Though Trump said his emergency powers under a state of emergency allowed him to act, Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com, wrote in Forbes that such a move would violate the Higher Education Act.

The legal point could be moot, Draeger said, because no one is likely to challenge in court a move designed to help student loan borrowers weather an emergency. But Mike Saunders, director of military and consumer policy for Veterans Education Success, said Education Department lawyers may feel bound by law to not allow interest to be waived. And Morabito, the department’s spokeswoman, didn’t immediately respond when asked if the department was still trying to determine if the president has the authority to waive the interest.

Draeger, meanwhile, said a next step should be ensuring that delinquent borrowers are not put in default status during the crisis.

“If your life is being disrupted, student loans might not be at the top of your list, like, food, gas or safety,” he said.

Consumer groups, meanwhile, continued to say that borrowers need more help than the uncertainty over whether waiving interest will lower their monthly payments.

“If they do not have that authority, then we call on the White House to work with Congress to not only waive interest, but to decrease the overall burden of student loan debt until this crisis is over,” said Saunders, who is calling for student debt to be canceled during the crisis.

Ashley Harrington, senior policy counsel at the Center for Responsible Lending, also called for the federal government to forgive at least $10,000 of each borrower’s loans, as well as to take other steps such as stopping wage garnishments during the crisis.

“When we’re bailing out industries and companies, there’s much more we can do to help borrowers and consumers,” she said.

Meanwhile, Senate Democratic Leader Chuck Schumer, as part of a broader coronavirus economic stimulus proposal introduced March  11, called for giving payment forbearance for six months on federally insured or guaranteed mortgages and federal student loans.

House Democrats on Friday night formally introduced a bill identical to one Senator Patty Murray, the top Democrat on the Senate's health and education committee, proposed earlier in the day, which would provide a temporary exemption for students from repaying Pell Grants or student loans if their campus closes or if their academic terms are disrupted.

Under current law, Pell Grant recipients would have to return a portion of their grants to the federal government if they withdraw from school, or in this case, if their institution closes.