Democrats amended the Heroes Act and chose to focus on “economically distressed borrowers” with ... [+]
Just two days after releasing the Heroes Act, House Democrats have released an amendment to the bill. The original bill called for $10,000 in student loan cancellation for all borrowers and a suspension of student loan payments through September 30, 2021. This new amendment scales back the proposed student loan forgiveness.
The manager’s amendment to the Heroes Act changes the bill to include a more targeted student debt cancellation proposal, likely for cost saving purposes. Instead of blanket forgiveness of $10,000, it would focus on borrowers who were already distressed before the coronavirus crisis.
The Democrats chose to focus on “economically distressed borrowers” with forgiveness, providing $10,000 in cancellation to those borrowers. According to the legislation, an economically distressed borrower is one who, as of March 12, 2020:
- Had a monthly payment of $0 under income-contingent or income-based repayment;
- Was in default on their student loans;
- Was at least 90 days past due; or
- Whose payments are suspended under existing forbearance options, such as economic hardship, unemployment, or cancer.
This targeted approach would provide great relief to those borrowers struggling the most prior to the coronavirus by definition. But it not only would direct relief to those struggling the most, it would eliminate the entire balance for most of those borrowers.
The typical depiction of a student loan borrower is one drowning in six-figure student debt, but that’s not really the case. Borrowers that are fighting to keep their head above water are usually ones with smaller balances. For example, two-thirds of student loan defaulters owe less than $10,000. In fact, the median debt of a student loan defaulter is just $9,600.
But this new proposal is sure to make some unhappy. Earlier this week, Senator Elizabeth Warren tweeted that she was glad to see a $10,000 debt cancellation proposal included in the bill. She and other advocates will likely see this as a step backwards.
The amendment may not keep the broad forgiveness, but it maintains the student loan payment suspension as proposed in the original Heroes Act. That would give major help to borrowers struggling throughout the crisis, while targeting cancellation to those with the most need.
