Nancy Pelosi in red blouse with geometric pattern background.

Understanding the House Democrat’s Coranvirus response bill’s impact on private student loans

March 25, 2020

On March 23, 2020, the House Democrats introduced its counterproposal to the Senate’s stimulus package titled the Take Responsibility for Workers and Families Act.

The Act does a host of things, including:

  • preventing corporations from using taxpayer money for stock buybacks
  • boosting unemployment insurance
  • strengthening the child and earned income tax credits and
  • injecting nearly $40 billion into schools and universities

It also has a huge impact on borrowers with private student loans.

Download the Act

Section 112 of the Act has three subsection:

  1. Subsection(a) amends the Truth in Lending Act by adding a new paragraph.
  2. Subsection (b) provides additional income-driven repayment options and loan forgiveness options.
  3. Subsection (c) details the minimum relief borrowers should receive during this season.

Let’s go through the Act in detail.

#1 Section 112(a)

Section 112(a) amends the Truth in Lending Act by adding subsection (h). Under this new subsection, Congress proposes to:

Pay the total amount due each month on a private education loan. The payment is based on the payment plan you selected or the payment required by your loan status. 15 USC § 1650(h)(1).

Stop the capitalization of interest during the COVID-19 national emergency period plus 6 months. § 1650(h)(2).

While the government is paying your student loans, the payments are reported to the credit reporting bureaus as if you’re making the payments. § 1650(h)(3).

Within 15 days after this bill is enacted, the government must provide you with notice:

  • Informing you of actions they’re taking on your behalf
  • Providing you with an easily accessible opt-out option and
  • Notifying you that the program is temporary. § 1650(h)(4).

The holder of your private education loan must immediately stop involuntarily collecting on your loan during the COVID-19 national emergency period plus 6 months. § 1650(h)(5).

While the government is making payments on your private education loan, your loan servicer must grant you a forbearance. § 1650(h)(6).

Your forbearance covers any payments that remain after the government’s payment is applied. § 1650(h)(6)(A).

And if you’re delinquent, but not yet in default, the forbearance will applied to bring you current. § 1650(h)(6)(B).

Your loan holder and servicer shall report the payment due on your account to the government. § 1650(h)(7).

The COVID-19 emergency period is defined as starting when this bill is enacted until the President declares the emergency is ended. § 1650(h)(8).

#2 Sec 112(b)

Private student loan lenders must offer borrowers a payment plan and forgiveness options similar to the REPAYE plan. Sec 112(b)(1). This section applies only if the private education loan holder agrees to receive payments from the federal government.

If you defaulted on your private student loan, any payment made by the government towards your private student loan will reset the statute of limitations. The same is true if a forbearance is applied to your account. Sec. 112(b)(2).

A debt collector collecting on a private education loan can’t pressure you to apply the amount to your private loans. Sec. 112(b)(3).

A debt collector or creditor of a private education loan can’t pressure you to apply the amount to your private loans. Sec. 112(b)(4).

Pressure means doing anything other than offering you basic information about your options. Violating this section is an unfair practice and an abusive act or practice. Sec. 112(b)(3), (4).

If you defaulted on your private education loan before the government makes a payment on your loan, the payment doesn’t reset the statute of limitations. Sec. 112(b)(5).

#3 Sec 112(c)

Within 270 days after the COVID 19 emergency period ends, qualified borrowers will receive either the balance owed on their private student loan or $10 thousand, whichever is less. Sec 112(c)(1)(A).

Within 270 days after the COVID 19 emergency period ends, the government must notify you:

  • The requirements for it to provide loan relief; and
  • The opportunity for you elect which private loan you want the government to pay. Sec 112(c)(2).

You have 45 days from the date notice is sent to you to decide which loan you want the government to pay. Sec 112(c)(3)(A).

If you don’t make a decision about which loan to pay, the government will pay the loan with the highest interest rate. Sec 112(c)(3)(B)(i). If you have more than one loan with the same interest rate, the government will pay the loan with the highest principal balance. Sec 112(c)(3)(B)(ii).

What’s a covered loan?

A covered loan is a Direct Loan, Federal Family Education Loan, or Perkins Loan. Sec 112(c)(4)(A).

What’s the COVID-19 emergency period?

The emergency period is the date this Act is passed until the President declares the emergency period is over. Sec 112(c)(4)(B).

What’s a private education loan?

A private education loan is a loan made by a bank, credit union, or other entity, expressly for postsecondary purposes. Sec 112(c)(4)(C) referring to 15 USC § 1650(8).

Who’s a qualified borrower?

You’re a qualified borrower if you borrowed a federal student loan (Direct, FFEL, or Perkins) or a private education loan. Sec 112(c)(4)(D).

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