Black, Latinx Student Loan Borrowers Will Be ‘Worse Off’ Under GOP Relief Proposal, Experts Warn

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The GOP released its plan to provide a second round of coronavirus relief earlier this week with a subpar plan on student loans that proclaims to simplify federal student loan repayment but provides no relief for student loan debt holders. The proposal comes just two months before protections provided by the CARES Act are set to expire at the end of September.

Despite record levels of unemployment and a tanking economy, the federal government is set to begin collecting payments and interests on federally held student loans by September 30. Republicans introduced a relief bill on July 27 that included a section that aims to streamline and eliminate most federal student loan repayment options available to borrowers.

Student loan borrowers can currently pick from nine repayment options, including pay as you earn, income-based repayment and others. The Republican plan would narrow that down to just two options: a mortgage-style repayment plan with a fixed annual amount paid over 10 years or less and an income-based plan in which borrower’s pay 10 percent of their discretionary income.

Borrowers with undergraduate loans will have their balance forgiven after 20 years, while those with graduate loans will be forgiven in 25 years. The bill would allow borrowers to keep their current repayment plan if they want to and would let borrowers with no income to defer monthly payments, CNBC reported.

“If you are one of the 43 million Americans with a student debt, you can continue to defer your monthly payment after October 1 if you have no income,” Senator Lamar Alexander (R-Tenn), who introduced the bill, said in a statement. Alexander also chairs the Senate Education Committee.

Ashley Harrington, Federal Advocacy Director and Senior Counsel for the Center for Responsible Lending (CRL), told The North Star that the Republican proposal was just a “repackaging” of some of the benefits that already exists and that it does not go far enough to protect student loan borrowers.

“In many ways, the proposal itself will make some borrowers worse off,” Harrington said. She added that the bill does nothing to help defaulted borrowers.

No Relief For Those Struggling

The bill also fails to provide any safeguards for student loan borrowers who may have income but are struggling to keep up with bills during the pandemic. The GOP’s decision to end relief for student loan borrowers has been heavily criticized by Democrats and experts.

“The Senate plan to end this temporary relief is unconscionable,” Student Debt Crisis Executive Director Natalia Abrams said in a statement to Yahoo! Finance. “We need immediate action to end the ever-worsening debt crisis, and we’re disappointed that Mitch McConnell and Senate GOP won’t offer even a small step in the right direction.”

“Right now we shouldn’t even be thinking about reforming the payment,” Harrington told The North Star. “We should be thinking about how we can give borrowers real relief, and that is in the form of actual cancellation and extending the payment suspension.”

Harrington said the new proposal fails to recognize the economic situation the country finds itself in during the pandemic. In a letter Senate leaders, the CRL and 55 other organizations said Congress “should provide real relief for student borrowers and work to strengthen borrower protections, not roll them back.”

Who Will Be Affected?

Without an extension to the relief Congress granted to student loan borrowers, an estimated 40 million Americans will likely have to resume payments. Those most likely to be affected will be Black and other student loan borrowers of color.

“The cost of higher education in this country was an obstacle felt more acutely by communities of color even before COVID-19. I am disappointed that the latest Republican proposal does nothing to provide relief to student loan borrowers,” Congresswoman Carolyn Maloney (D-NY) said in a statement to The North Star. “Especially during a public health crisis, many Americans simply don’t have the financial bandwidth to pay off their student loans.”

Maloney continued: “With this crisis still far from under control, we must extend student loan forgiveness for both federal and private lands and extend repayment suspension so that borrowers can focus on keeping themselves and their families healthy.”

A 2018 report by the Brookings Institute found that Black or African American college graduates borrowed more than double compared to white graduates in 2004. They also owed more than three times the amount white graduates owed.

Meanwhile, Hispanic or Latinx college graduates borrowed about the same as their white counterparts but owed nearly $8,000 more, the report found.

The same analysis found that nearly 40 percent of borrowers may default on their student loans by 2023. It revealed that Black college graduates default on their loans at five times the rate of white college graduates.

Harrington noted that the student debt crisis disproportionately affects Black borrowers and other people of color because of a history of racially exclusionary policies and practices that have led to the racial wealth gap.

What Are Democrats Proposing?

In May, the Democratic-led House of Representatives passed the HEROES Act as a follow-up relief bill to the CARES Act. The total cost of the Heroes Act would be $3 trillion, or three times that being proposed by the GOP’s HEALS Act.

Unlike the GOP plan, the HEROES Act would extend the CARES Act’s suspension of interest and payments of federal student loans through September 2021. According to CNBC, the bill also proposes expanding the pause to all federal student loans.

The Republican-led Senate has refused to vote on the HEROES Act.

Harrington told The North Star that the HEROES Act was a much better response to the current crisis than the one presented by the Republican-led Senate. However, Harrington argued that debt cancellation, which the HEROES Act limits to economically distressed borrowers, should be extended to all borrowers.

“There are studies that show that student debt cancellations actually helped the economy,” Harrington said. “Student debt has been shown to cause people to delay home buying, to delay starting businesses, to delay even family formation or saving for retirement. So all of these things have an effect beyond just the individual.”

About the Author

Nicole Rojas is a senior writer for The North Star. She has published in various publications, including Newsweek, GlobalPost, IHS Jane’s Defence Weekly, and the Long Island Post. Nicole graduated from Boston University in 2012 with a degree in print journalism. She is an avid world traveler who recently explored Europe, Asia, Australia and the Americas.