Democratic members of the U.S. House of Representatives introduced the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act) on Tuesday, May 12, 2020. The 1,815-page legislation includes a proposal for student loan forgiveness, among other student aid provisions. It updates, amends and expands the CARES Act.
This legislation has not yet been enacted and may change during negotiations with the U.S. Senate.
Expanded Payment Pause and Interest Waiver on Federal Student Loans
The HEROES Act expands the payment pause and interest waiver from the CARES Act to include all federal education loans, including FFELP loans not held by the U.S. Department of Education and Federal Perkins Loans.
In lieu of retroactivity, the U.S. Department of Education will make a lump sum payment on the borrower’s loans equal to the amount of principal and interest paid by the borrower, voluntarily or involuntarily, from March 13, 2020 through the date of enactment of the HEROES Act.
The legislation extends the payment pause and interest waiver by a year, to September 30, 2021.
Loan Forgiveness for Federal Student Loans
The HEROES Act will cancel or write down up to $10,000 in federal student loans per borrower, or the outstanding loan balance, whichever is less.
If the borrower does not specify how to apply the loan forgiveness to their federal student loans, the U.S. Department of Education will apply the loan forgiveness first to the loans with the highest interest rates. If all of the borrower’s loans have the same interest rate, the loan forgiveness will be applied first to the loan with the highest principal balance.
Payment Pause and Interest Waiver for Private Student Loans
The HEROES Act requires the U.S. Treasury to make monthly payments on private student loans through September 30, 2021, with total payments capped at $10,000 per borrower.
The loans will be reported to credit reporting agencies as though the payments had been made by the borrower. No adverse credit information may be reported.
Interest will not be capitalized during this time period.
Lenders are also required to suspend involuntary collection activities.
The loan payments do not reset the clock on statutes of limitation.
The lenders must agree to modify the loan terms to provide borrowers with the Revised Pay-As-You-Earn (REPAYE) repayment plan on the private student loans. This may be difficult for loans that have been securitized.
Loan Forgiveness for Private Student Loans
Within 90 days after September 30, 2021, the U.S. Treasury will forgive up to $10,000 in private student loans per borrower or the outstanding loan balance, whichever is less. This forgiveness will be reduced by the amount of private student loan payments previously made by the U.S. Treasury.
Borrowers are not required to apply the loan forgiveness to all of their private student loans. They can elect to have the payments made directly to a specific loan. If the borrower does not make such an election, the loan forgiveness will be applied to the loans with the highest interest rates first.
Other Student Loan Provisions
The HEROES Act provides a mechanism for consolidation loans to not reset the clock on public service loan forgiveness and the 20- or 25-year loan forgiveness under income-driven repayment plans. The interest rate on consolidation loans made through September 30, 2021 will not be rounded up to the nearest 1/8th of a percentage point.
The legislation waives the requirement for a borrower who is pursuing public service loan forgiveness to be employed in a public service job through September 30, 2021.
Recertification requirements on income-driven repayment plans are suspended through September 30, 2021.
The legislation requires implementation of the defense to repayment for federal loans based on previous findings by the U.S. Department of Education that a college made a false or misleading representation with regard to job placement rates, guaranteed employment or transferability of credits.
The U.S. Department of Education will be required to cancel or repay these loans in full and return to the borrower all payments previously made by the borrower, voluntarily or involuntarily. All adverse credit history previously reported on the loan will be deleted and any defaults will be cleared.
Emergency Financial Aid Grants to Students
The HEROES Act excludes all emergency financial aid grants to students from need analysis, including emergency financial aid grants funded by the CARES Act, federal agencies, states, Indian tribes, institutions of higher education and scholarship-granting organizations.
The HEROES Act bans the U.S. Department of Education from imposing any restrictions on which students may receive emergency financial aid grants, other than restrictions based on the student’s enrollment at a college or university.
This amendment makes international students, undocumented students and DACA students eligible for emergency financial aid grant funds. It also reverses the guidance from the U.S. Department of Education that required emergency financial aid grant recipients to have filed a Free Application for Federal Student Aid (FAFSA) or be eligible to file a FAFSA.
Fix for Stimulus Checks
Most college students under age 24 were ineligible for the stimulus checks authorized by the CARES Act.
The HEROES Act changes this and allows parents to receive the $500 per child recovery rebate based on all dependents, not just children age 16 and younger. College students under age 24 are considered to be dependents.
Other Financial Aid Provisions
The HEROES Act includes several other financial aid provisions, such as:
- Waives the non-federal share from private non-profit employers for Federal Work-Study jobs. The CARES Act previously waived the non-federal share paid by colleges and universities.
- Treats people who have applied for or received unemployment benefits at the time of filing the FAFSA as though they were dislocated workers. This can make applicants eligible for the simplified needs test and auto-zero EFC.
- Establishes a special COVID-19 provisional program participation agreement for colleges and universities. If such a college closes while the student is enrolled or within 120 days of withdrawal, students will be eligible for an automatic closed school discharge if they have not enrolled in another college or university within 3 years of the school’s closure.