Consumer Protection Agency recommends extending student loan relief
This week, the Consumer Financial Protection Bureau (CFPB) Student Loans Ombudsman published an annual report on student loans which calls on policymakers to consider expanding and expanding student loan relief due to the pandemic.
The CFPB is a consumer protection agency created by the Dodd-Frank Act on Wall Street Reform and Consumer Protection. The law created a student loan ombudsperson within the agency and required it to create an annual report and provide recommendations to the Treasury and Education Secretaries, the Director of CFPB, and Congress.
Current student loans ombudsperson Robert Cameron was appointed in 2019 and released his report on Wednesday. Cameron’s report details student loan complaints and the student loan market itself, but it also provides recommendations for student loan relief.
One of Cameron’s first loan relief recommendations is that policymakers create parity among federal student borrowers and extend the benefits of the CARES Act. the CARES Law suspended payments and accrued interest on student loans held by the federal government until September 30, 2020 due to the economic crisis caused by the pandemic. Before the suspension expires, President Trump extended until December 31 2020.
But when Congress suspended student loan payments, they left out borrowers with federal student loans issued under the old banking system and held by banks. (Some of these loans are owned by the federal government.) These borrowers were still required to make payments after the economic aid and stimulus passed. This exclusion also created confusion among borrowers who thought their payments were or should be suspended because they had federal student loans, not private loans. Cameron recommends that these borrowers also receive relief.
Additionally, the report recommends extending the suspension beyond the December deadline. Cameron’s recommendations did not specify how long the payment break should be extended, but he suggested that policymakers do so for a fixed period, a period determined by events, or both. An event extension would probably work like what many are calling automatic stabilizers, where government intervention during economic downturns is based on economic indicators such as unemployment rates. Members of Congress called for automatic stabilizers to address other recession-related issues, such as increasing unemployment benefits.
In this scenario, Congress or the Administration would choose an indicator and set a threshold that would signify an economic recovery or a recession. If the unemployment rate were the chosen rate, student loan repayments would resume when they fell below the set threshold. And in the future, if unemployment exceeded this threshold, a suspension would start again. Cameron’s recommendations indicate that a hybrid approach that uses both a time and event approach would provide the benefit of having the predictability of a fixed end date, but also flexibility in the event of a slower recovery.
These recommendations could be adopted by Congress if a stimulus deal is reached. Otherwise, some of them could be accomplished under the executive authority of the president.
Outside of pandemic relief, Cameron wrote that policymakers may wish to simplify existing loan cancellation and repayment options to reduce confusion for borrowers. In addition, the recommendations indicate automatic entry for income-based repayment for delinquent borrowers. The report makes other recommendations related to bankruptcy, education of borrowers, graduation, etc.