The CARES Act was supposed to help student loan borrowers, but for many it failed

This story has been updated to reflect statements by a spokesperson for the US Department of Education.

When the Congress adopted the CARES law in early April, many supporters applauded. In addition to stimulus payments and assistance to small businesses, the legislation provided for critical student loan relief to millions of student loan borrowers as the economy crumbles amid a global pandemic.

The CARES Act provides temporary student loan relief in three critical areas until September 30, 2020:

  • Student loan payments are suspended.
  • Interest is suspended.
  • Collections on delinquent federal student loans have stopped.

Despite the clarity and simplicity of the CARES law’s provisions on student loans, the implementation of the law by the Department of Education has been patchy at best and, in some cases, disastrous. Here are some of the main problems faced by student loan borrowers.

Not all student loans are covered

Although the student loan relief provisions of the CARES Act are quite broad, only federal agencies owned by the government student loans are covered. This means that millions of student loan borrowers with private loans and federally guaranteed loans are not covered.

While some private lenders have offered some relief, this relief is generally not as strong as the relief provided by the CARES Act, nor is it legally required. As a result, millions of borrowers struggle with their student loans, despite the protections of the CARES Act.

Many student loan borrowers have suffered credit damage

The provisions of the CARES law on student loans were automatic (meaning that student borrowers did not have to ask for relief). And borrowers weren’t supposed to be harmed or worse off because of this automatic relief. For example, borrowers who were already on track for loan cancellation programs or loan rehabilitation programs would continue to progress even if no payment was required.

However, millions of borrowers have reportedly suffered credit damage following the suspension of payments from the CARES law. At least one of the United States Department of Education’s loan officers falsely reported borrowers’ loan status to the credit bureaus, causing credit damage. Student loan borrowers filed a complaint Therefore.

Borrowers continue to face payday garnishment

Although the CARES Act required the Department of Education to suspend all payday foreclosures for borrowers in default on their federal student loans, the department was slow to implement the suspension. Therefore, over 50,000 student loan borrowers continued to have their wages garnished weeks after the entry into force of the CARES law. These borrowers were forced to file a class action against the Ministry of Education.

Almost two months later, the Ministry still struggling implement wage garnishment suspensions, causing thousands of student loan borrowers to lose part of their paychecks in the biggest economic crisis in generations.

A spokesperson for the US Department of Education acknowledged that at the end of the week ending June 4, 2020, around 6,000 borrowers continued to have their wages garnished, but noted that this represents a drop of 98, 5% of overall wage garnishments since March 13, 2020. The spokesperson further noted, “We have made substantial progress in getting employers to confirm their wage garnishment suspension measures,” stating that the Ministry sent numerous letters to employers and contacted non-compliant employers “on a daily basis”.

Borrowers have their tax refunds seized illegally

The CARES Act also required the Department of Education and the Department of the Treasury to immediately suspend all foreclosures of federal tax refunds for borrowers in default of their federal student loans. Like the wage garnishments, however, the implementation of the suspension by the Department of Education has been slow and uneven.

Over $ 2 billion in tax refunds were misused by the government after the effective date of the student loan relief provisions of the CARES Act. While the Education Department maintains that those repayments have since been paid off, some student loan borrowers are still waiting. They filed a complaint Therefore.

A spokesperson for the US Department of Education said, “The only federal student loan borrowers awaiting repayment are those for whom the Treasury and the Department do not have a valid mailing address. The Ministry added functionality to its default resolution portal—myeddebt.ed.gov—Provide federal student loan borrowers with a quick and easy way to validate their mailing address.

Borrowers Have Difficulty Buying or Refinancing a Home

The implementation of the CARES Act also had the unintended effect of rendering more difficult for some student loan borrowers to obtain a home loan or refinance.

When student loan payments are set at $ 0, some mortgage insurers use a formula requiring them to assume a student loan payment equal to 1% of the total balance. This can give the impression that a borrower’s payment is much higher than it would otherwise be. As a result, some student loan borrowers may be turned down for a mortgage or they may need to take extra steps to get approval.

Final result

Some of the problems with the CARES law are due to the way Congress drafted the law in the first place. For example, the law itself excludes private student loans and federal loans guaranteed commercially protections afforded by law. But many of the issues (such as credit issues and delays in suspending collection efforts) are attributable to patchy and difficult implementation by the Education Department and its contracted student loan providers.

With the CARES Act student loan relief provisions set to end in just a few months, some borrowers may end up with limited CARES relief, or no tangible relief at all.

About Terry Simmons

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