What Can the Government Do to Collect Student Loans?

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Since the Government helps the students who have their student loan debt, you may wonder how the government collects the budget to pay off the student loan debt. In fact, there are a bunch of student loan forgiveness programs under the government that have helped to pay off the student loan debt.

Talking about the government effort to pay off the student loan debt, certainly there are some things that the government performs regardless of the student loan forgiveness. Well, to know more information about it, let’s see our post below!

What Does the Government Do to Collect Student Loans?

The Government will get everything under its power. So as with student loans, the government can easily seize refunds and wages to collect the student loans and offer the student loan forgiveness. Aside from that, the government even seized certain federal benefits like Social Security, all without first getting a judgement in court.

To pay off the student loan forgiveness, the government has issued and validated the related law. There are at least two laws issued by the government to relieve the student loan. What are they? Let’s see them below!

  1. Through Heroes Act

The Heroes Act that stands for ‘The Health and Economic Recovery Omnibus Emergency Solution Act’ is a law that includes a proposal for student loan forgiveness among other student aid provisions.

The Heroes Act was introduced by Democratic members of the U.S. House of Representative on may 12, 2020. The Heroes Act student loan forgiveness is intended for the students who have economically distressed.

However, the economically distressed refers to a student loan borrower who will pay $0 monthly otherwise. This student loan forgiveness program applies if the borrower picked an income-driven repayment plan. Furthermore, the individual also was in student loan default or also was 90 days on their student loans.

It is known that the Heroes Act is a stimulus package, meaning a win for borrowers searching for student loan repayment from their employers. Moreover, the Heroes Act really extends student loan assistance under IRC Section 127 for five years where the employers can now pay employees up to $5,250 per year toward qualified educational expenses.

The Heroes Act student loan forgiveness must be for a qualified education loan that is issued for the education of the employee. It’s important to note, the payments cannot be for the education of an employee’s spouse or children.

The Heroes Act student loan forgiveness provisions will remain in full force in which an employer should adopt and implement a written plan to explain the tuition assistance benefit. Furthermore, the employer must also communicate the termes or the program to eligible employees.

For more information, the Heroes Act also covers a variety of plans to stimulate the economy, including:

  • Second stimulus checks
  • Weekly enhanced unemployment benefits
  • State and local aid
  • Student loan forgiveness.

President-elect Joe Biden stated that Congress needs to pass a stimulus package like the Heroes Act. Certainly, it will surprise you, considering all the rhetoric to cancel the student loans, especially in a legislative bill that has been proposed and passed by the House Democrats.

  1. Through CARES Act

The CARES Act stands for the Coronavirus Aid, Relief and Economic Security Act. This law temporarily suspends monthly payments on all loans that are held by the Department of Education, from March 13, 2020, through September 30, 2020.

Well, the suspension is automatic where the borrowers do not need to apply for relief, though they can still select to make monthly payments. For borrowers in default, the bill will stop the involuntary collection of payments through wage garnishment and seizure of tax refund until the end of September. Furthermore, this law also determines the interest rate at 0% during this time period.

The relief offered through the CARES Act will only benefit federal loan borrowers and specifically loans held by the Department of Education. In this case, Direct Loans that donate for about ¾ of all student debt-qualify, but a lot of Perkins loans and Federal Family Education Loan (FFEL) Loans do not.

For example, approximately 2/3 of FFEL debt will be ineligible for the student loan forbearance in the CARES Act. Aside from that, about 8% of student loan debt is private and also does not qualify.

The individuals that are already enrolled in forgiveness programs including Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) will still benefit from the forbearance program.

The Income-Based Repayment plan really requires borrowers to create monthly payments equal to 10% of their discretionary income for 20 or 25 years with any outstanding balance being forgiven. Well, the government will treat the skipped payments as if they were made for the borrowers who are enrolled in this program.

The CARES Act student loan provisions actually handle the cash flow issues which stem from temporary losses of income and wages. However, the help is mostly temporary. Even though no interest accrues more than the next six month, the principal payments which would have been due during this period will be delayed, not forgiven.

While the student loan ways included in the CARES Act are very beneficial, but many people believe they will not go far enough. For example, the House Democrats had included a provision to cancel $10,000 in loans for all borrowers in their version of the coronavirus response bill.

Certainly, the provisions will assist cushion the blow of the loss of income that a lot of borrowers may likely experience as a result of the pandemic. If the student debt is cancelled up to $10,000, it will automatically eliminate the entire balance for 35% of borrowers.

Additionally, the Student Loan Borrower Assistance Project at the National Consumer Law Center will advocate for this relief to ensure financial relief and economic recovery for those already burdened by debt.

Well, those are the two government acts that really help the students who have their student loan debt to pay it off. Sure, what the government performs to relieve the student loan deserves to be appreciated.

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