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Here's how the latest GOP coronavirus relief proposal would impact student loans

Senator Lamar Alexander, a Republican from Tennessee and chairman of the Senate Health Education Labor and Pensions Committee, listens during a hearing in Washington, DC, on June 30, 2020.
AL DRAGO/AFP via Getty Images

As the coronavirus pandemic continues to threaten the physical and financial health of Americans across the country, Senate Republicans introduced the "Safely Back to Work and Back to School Act."

The bill, introduced by Tennessee Senator Lamar Alexander Monday, includes a section on student loan repayment that would streamline or eliminate several federal student loan repayment options that borrowers are currently able to choose from. 

Currently, student loan borrowers can choose from nine repayment options. The proposed bill would cut back these options to include just two: a mortgage-style repayment plan with a fixed annual amount paid over 10 years or less and an income-based plan where borrowers pay 10% of their discretionary income.

The income-based plan would define discretionary income as family income above 150% of the poverty line. Borrowers with undergraduate debt will have their balance forgiven after 20 years and borrowers with graduate school debt will have their balance forgiven after 25 years. 

Importantly, the bill would allow borrowers to keep their current repayment plan if they wish and would allow borrowers with no income to defer their monthly payments. In April, the CARES Act allowed federal student loan borrowers to defer their payments until September 30th.

"If you are one of 43 million Americans with a student debt, you can continue to defer your monthly payment after October 1 if you have no income," Alexander said in a statement. 

Additionally, the GOP bill proposes changes to how the government calculates the amount families are expected to contribute towards education costs, known as the expected family contribution, or EFC. It also stipulates that funds received through the CARES Act, such as stimulus checks and enhanced unemployment benefits, will not be counted when estimating a families' EFC. 

The bill also "simplifies the documentation of changes in family income for financial aid appeals," explains higher education expert Mark Kantrowitz. "It also adds a question to the FAFSA to ask whether the applicant and their family have been affected by the pandemic, but does not change the calculation of the EFC in response to an affirmative answer."  

But experts like Kantrowitz say the bill ultimately does not provide real relief for borrowers. 

"The proposal for simplifying student loan repayment is just another income-driven repayment plan and does not provide student loan borrowers with any real relief. It's actually more expensive for borrowers than the pay-as-you-earn repayment plan," says Kantrowitz, referencing a popular repayment plan that borrowers currently can choose. 

Bola Sokunbi, certified financial education instructor, founder of Clever Girl Finance and FAB AID board member, says many student loan borrowers may not be able to make their payments in October even if they still have income. 

"While the student loan proposals might simplify repayment terms for borrowers who will be required to start making student loan repayments after the federal forbearance program ends in September, many borrowers will not be able to meet these requirements due to the financial impact of COVID-19," she explains. "Despite still earning incomes, many have taken on the additional responsibility of supporting family members who have lost jobs or are otherwise impacted as a result of this health crisis."

She continues, "Many borrowers have also had incomes reduced and so even an income-based repayment plan might still be unaffordable for many given their added financial obligations. It's also important to consider that the majority of the student loan burden is carried by women, a demographic that has been more impacted than men as it relates to job losses and the inability to go back to work due to lack of childcare."

And the new bill lacks the kind of student loan forgiveness that Democrats have proposed.

In May, Congresswoman Carolyn Maloney (D-NY) introduced a bill in the House of Representatives that would eliminate the student debt of health-care workers treating patients with coronavirus.

"Frontline health workers are delivering care to the sickest patients and putting their own safety at great risk in order to keep doing their jobs," said Maloney in a statement. "And in return, I believe that we have an obligation to ensure that they are relieved of the debt they incurred to train for this critical work – in graduate degree programs or other professional certification." 

That same month, Representative John Sarbanes (D-MD) introduced the "What You Can Do For Your Country Act" that would fine-tune the Public Service Loan Forgiveness program, which was created in 2007 to provide student debt forgiveness for public service workers but that the Government Accountability Office recently found currently denies forgiveness to 99% of applicants.

And on July 24th, Democratic Senators Kirsten Gillibrand, Tim Kaine and Elizabeth Warren called for the next relief package to include student loan forgiveness for public servants who have worked on the frontline of the pandemic. 

"This crisis has shined a bright light on the need for immediate action to ensure that we are giving our essential workers the support and forgiveness they have rightly earned," said the trio. 

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