President Joe Biden is preparing to sign his $1.9 trillion relief package, which can impact Americans’ financially through student loans stimulus packages, tax reforms, and unemployment benefits.
The package is that the second-largest economic relief package in America’s history, second to the Coronavirus Aid, Relief and Economic Security (CARES) Act. Biden’s signature will trigger the delivery of $1,400 stimulus checks, an extension of unemployment benefits until September, and tax-free forgiveness of student loans.
On Saturday, the Senate passed the House-led package with variety of amendments, which sent it back to the House for approval. It passed on Wednesday, with nearly all Democrats and no Republicans voting in favor of it. just one Democrat, Representative Jared Golden from Maine opposed it.
“My vote today shouldn’t be construed as an unwillingness to support my constituents and therefore the economy through this pandemic. That very willingness is why I even have supported $4 trillion in spending within the last year on food assistance, child care subsidies, relief for renters and homeowners, federal unemployment assistance, and support for little businesses,” Golden said during a statement. The third round of stimulus checks could hit people’s bank accounts next week, consistent with House Majority Whip James Clyburn, and therefore the White House hopes “many” Americans will receive payments by the top of the month.
While the American Rescue Plan is offering higher payments than either of the primary two rounds, it limits who will receive them. Individuals with adjusted gross incomes of $75,000 and joint filers with incomes below $150,000 will receive the complete payment of $1,400 and $2,800 respectively. However, reduced payments will now be completely stop for people earning over $80,000 and joint filers earning over $160,000.
The CARES Act completely stop benefits for people earning quite $99,000 and joint filers with incomes above $198,000. The quickening of the phase-out of payments could cut many people that received the primary two payments out of the third round.
Student Loans and Recent Stimulus Packages: What You Need to Know
Nowadays, news about student loan-related issues is more challenging to understand than ever. With the 46th president’s election and continuing pandemic, there pops an update almost every day. Hence, it is not surprising that student loan borrowers feel lost due to information overload.
In accompanying the difficulties borrowers face, we created this guide to highlight the most critical points about the recent stimulus packages and debt collection suspension periods. Besides presenting, we will also explain what is in the stimulus package for student loans and what differences it brings.
Lastly, the borrowers who cannot access these benefits- the federal borrowers without direct loans and private debtors- will get familiar with their options to reduce debt obligations.
Different Stimulus Packages for Student Loans
In March, Congress approved the CARES Act, which allowed borrowers not to make payments for student loans until September end. During such forbearance periods, the borrowers make $0 payments with no interest accrued.
Later, in August, ex-president Donald Trump announced that the non-collection period would be prolonged till the end of December. In December, Education Department Secretary Betsy DeVos extended the forbearance period on student loans until January.
Different acts were also proposed throughout the period but did not get approval from Congress. For example, the Democratic House supported the HEROES Act. This act aimed to extend the forbearance period till September 2021. However, as it involved a considerable price- $3.4 trillion, Republicans did not support the idea.
Additionally, the Republican Senate supported the HEALS Act. This proposal targets cancellation of all federal repayment plans, except Revised Pay as You Earn and the Standard Repayment plan. Besides, different from the HEROES Act, the HEALS Act involved resuming the debt-collection period starting after September. Similarly, it was not approved, either.
March 2020 Stimulus Package
After the COVID-19 pandemic hit the economy, the government was obliged to make some favors for the borrowers. Otherwise, borrowers could default, which is not desired. Student loan default involves an expensive process, and debt collection becomes even more problematic. Therefore, not surprisingly, the Senate and House passed the CARES Act. We mentioned the act in the previous section, but it deserves more attention as it was worth $2.2 trillion.
The act brought the benefits almost automatically. The borrowers did not need to do much to receive government assistance. Its main element was the debt forbearance period till September end 2020. If a borrower made payments from March 13 till that period, he/she could request a refund. Besides, collection through wage garnishments or tax refunds stopped.
What about the Student Loan Forgiveness Program?
The CARES Act did not involve immediate forgiveness for student loans. However, it also did not negatively affect borrowers working for cancellation opportunities.
During this period, the borrowers are not required to repay the debt. Meanwhile, no interest accrued, and the months still counted for the federal aid programs.
For example, the Public Service Loan Forgiveness program requires 120 payments before the debtor receives the cancellation for the rest of the owed amount. Some borrowers were worried that $0 payments would stop their progress for the PSLF program, but it did not happen. The forbearance considered the PSLF payment progress. Income-Driven repayment plans also grant forgiveness after some payments. The CARES Act did not hurt the borrowers working for such debt elimination programs.
As a part of a stimulus package for student loans, employer contribution to student loan repayment was proposed. This contribution helped businesses to get a tax break-up worth a maximum of $5,250. However, it was only for some time, and the officials needed to approve it again in 2021 to make it permanent.
December 2020 Stimulus Package
In December, the government delivered an economic stimulus package. The package has many benefits for the student loan borrowers.
First, one element in the stimulus package for student loans was the employer’s ability to repay employees’ debt. The government extended this ability for five years. In general, employers can contribute to employees’ student loan payments, which involves a maximum of $5,250. Besides, this contribution is not taxable.
The government also made changes in the Pell Grant process. Its limit was increased, and the program started to cover incarcerated people. It was announced that more than $1 billion would be distributed as forgiveness to Historically Black Colleges and Universities. Besides the monetary benefits, the government also announced that it would make the FAFSA- Free Application for Federal Student Aid- process simpler. In this way, more borrowers will be eligible for the benefit.
However, unfortunately, the part of the stimulus package for student loans did not involve any change to Income-driven programs, removal of taxation on forgiveness, or extension of the non-collection period for borrowers. We will talk about these issues in the following sections.
Employer’s Contribution to Student Loan Repayment
One of the biggest changes included in the stimulus package for student loans was the extension of the employer’s contribution to the repayment process. The supporters of this change always wanted to make the assistance tax-free so that the young people have more incentives to work with certain companies. It was expected that the benefit would be extended for a year.
However, surprisingly, Congress made this benefit accessible for five more years. In this way, it communicated the idea that the employer’s assistance in repayment can be permanent.