‘I Was Horrified’: For Millions of Borrowers, the Coronavirus Stimulus Law Offers No Relief

When Congress last week passed a $2-trillion coronavirus stimulus plan, Ken Smith thought he’d be able to put his student-loan payments on pause.
Like several million Americans, the 58-year-old from Boston had recently lost his job amid an economic freefall spurred by the new pandemic. To help stay financially afloat, Smith looked to take advantage of a provision of the stimulus legislation that suspends student-loan payments for six months.

But when he called his student-loan servicer, Navient, Smith was told that he is among the millions of borrowers making payments on commercially held loans who are excluded from the stimulus law. It suspends payments only on federally held loans, not loans — like Smith’s — that were made through the Federal Family Education Loan Program, or FFEL, and are commercially held but federally guaranteed.

“I was horrified when all this came to light to me,” Smith said. “I was like, ‘What? How is this possible?’”

Smith said he’s OK financially for the short term. He has applied for unemployment benefits, has some money socked away, and is confident he will resume his job of 15 years — as an event manager at a catering company — once the crisis passes. But if the pandemic continues much longer, his $295-per-month student-loan payments could hurt.

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“An extra $300 per month is vital. That can go to things like food and whatever else I need,” Smith said. “I wouldn’t say I’m destitute or really nervous. … But three months from now might be a completely different story.”

There are 7.2 million borrowers with commercially held FFEL loans, according to data from the nonprofit National Consumer Law Center. Some 1.9 million borrowers with federal Perkins loans — low-interest loans made through colleges for students in financial need — are also excluded from relief under the law. Nor are borrowers with those two types of loans included in a two-month moratorium on student-loan interest and student-loan payments issued by the Trump administration before the stimulus law was enacted. (Payments on federally held FFEL loans are suspended by both the stimulus law and the administrative moratorium.)

Neither program is issuing new loans. Perkins stopped doing so in 2017, while new FFEL loans were halted in 2010, after the federal government consolidated loans to borrowers in its direct-loan program.

Without relief, there are no easy solutions for borrowers with commercially held FFEL loans. And figuring out the best way forward can be a challenge during a public-health crisis of this scale, when many people may be putting their health, jobs, and other needs first, said Matthew M. Chingos, vice president for education data and policy at the Urban Institute.

“They still have options available to them, but they have to practically seek them out,” Chingos said. “They have to call up their servicer and ask for a deferment or forbearance or something like that. So if they’re in the stress of a health issue or a job loss, that’s obviously going to be more challenging for folks.”

Forbearance would freeze borrowers’ payments temporarily while they deal with a lost job or economic hardship during the crisis, but without relief from the stimulus law, interest would still accrue, said Tariq Habash, head of investigations at the Student Borrower Protection Center.

During the crisis, “not only are they going to continue accruing interest and seeing their balances grow, but borrowers are going to have to either make those payments or figure out what the alternative is,” said Habash. “For some, that might mean not being able to make their payment and becoming delinquent on their loans.”

‘A Catch-22’

Jennifer Moxley, who owns a video media company in North Carolina, said she is paying $256 per month toward her nearly $6,000 student-loan balance with an interest rate of 8.1 percent.

Moxley, who graduated from Pfeiffer University in 1998 with a communications degree, said she had lost all of her business since the coronavirus crisis began. She ordinarily earns around $50,000 per year, and has some rainy-day funds, but is stretched thin. She could go on forbearance or get an economic-hardship deferment, but either option would set back her effort to pay off her debt.

“When the headline is that people are getting an interest-free deferment, or payments are put on hold, and then so many people [are] excluded in the fine print, it’s another kick in the gut for this student-loan situation,” Moxley said. “It’s once again another fine print cut into the flesh from this loan.”

Learning they were not eligible for the student-loan suspension was especially jarring for borrowers, like Aimee Lombard, who said they didn’t even know they held an FFEL or Perkins loan. Lombard, an adjustment counselor at a high school in Massachusetts, said she found out none of her six outstanding student loans were eligible for suspension.

While Lombard and her husband are still being paid, her full-time summer job — at a grocery store in a beach community near Cape Cod — is at risk due to the coronavirus.

Having her $290 monthly payment suspended could have allowed her to chip away at her $30,000 student-loan balance that she accrued while earning a degree in community mental-health counseling at Lesley University. Without the suspension, finances will get somewhat tighter for her family, and she worries that she may not be able to afford to pay her 10-year-old daughter’s college tuition one day.

“I know there are people in much worse positions than this, so I am grateful that we have the ability to make ends meet,” Lombard said. “But if this had been the zero-percent interest, it would have finally been a chance to not just make ends meet but maybe actually get ahead a little bit.”

Borrowers in the two programs do have the option to consolidate their loans into the direct-loan program, which would allow them to take advantage of the stimulus law’s benefits.

But consolidating FFEL loans into the direct-loan program could restart the clock on borrowers’ income-driven repayment plans, locking them into debt longer, said Joanna Darcus, staff attorney at the National Consumer Law Center. They could also end up, she said, with a slightly higher interest rate and larger monthly payments.

“To be able to qualify, borrowers are being forced into a Catch-22,” Habash said. “Either you get access to this benefit for a handful of months of no payments but then you restart the clock on that forgiveness, or potentially capitalize your balance, and now you have a larger principal balance than before.”

Karen Egypt, a research analyst in Maryland, said she was told a few years ago by Nelnet, her loan servicer, that she would see her FFEL loan’s interest rate rise, from over 3.5 percent to 4.8 percent, if she were to consolidate her loans into the direct-loan program. That step would also extend the amount of time it would take her to pay off her loans through the income-driven repayment program. She feared, she said, that her monthly payments of $600 would increase.

Egypt has already seen her student-loan debt grow, from $50,000 to $70,000, since 2000, when she earned a master’s degree in music at Catholic University of America. She’s never been delinquent on her payments but took an economic-hardship deferment for a few years, after getting laid off from a previous job. She is still working at the moment, but if she were laid off, she said, she could end up back on an economic-hardship deferment while her debt continues to accrue interest.

Had she gotten the six-month interest-free suspension, she could have made a dent in her student-loan debt instead. “Maybe,” she said, “there’ll be a time when I’ll actually finish paying off all these loans.”