How Is the COVID-19 Pandemic Impacting the Student Lending Industry?Like the country and economy at large, the COVID-19 pandemic is significantly impacting secondary education and the student lending industry. In response to the pandemic, colleges across the country closed their campuses, sent students home, and turned to online learning platforms, creating uncertainty for current student borrowers. President Trump, Congress, and the U.S. Department of Education are also attempting to address the potential repayment hardships for borrowers caused by business closures and quarantines. Below, we breakdown some of the latest news on how the COVID-19 pandemic is affecting the student lending industry.

  • While no one can be certain at this time, President Trump’s administration and the CDC have both suggested that social distancing policies — that may require college closures or a shift to online learning — may last at late as August. This uncertainty will certainly impact enrollment for summer semesters and could impact fall enrollment. Origination of new loans will likely slow. On a more positive note, low interest rates could lead to a boom in student loan refinancing.
  • Federal Guidance

President Trump announced that his administration would waive the interest on all federally held student loans. Nothing written has been provided on this policy as of the time of publishing this post, but the plan is generally believed to be structured as follows:

  • The interest waiver applies to all federally held student loans, which includes direct loans, Family Federal Education Loans (FFEL), Perkins Loans, Parent Plus and Grad Plus loans.
  • The interest waiver will be applied retroactive to March 13, the date of the announcement.
  • The interest waiver will be applied automatically — borrowers will not need to request the waiver.
  • While it is unclear exactly how the waiver will affect monthly payment amounts, it is believed that the interest waiver will not lower the borrower’s monthly payment amount, but rather the whole payment will be applied to principle. If structured this way, the waiver may not result in a decrease in monthly payments.
  • President Trump and the Department of Education have stated that forbearance agreements will be available to those affected by COVID-19 and unable to make a payment. Servicers may need to boost their capacity to field requests for forbearance and other loss mitigation plans, if demand increases due to extended social distancing policies or an economic slowdown.

While additional guidance from the Department of Education may help clarify this plan for servicers, it currently looks to be a significant logistical challenge for servicers to implement the interest waiver.

  • On March 5, the Department of Education issued guidance for interruptions in study for current students, which addresses situations including professional judgment, satisfactory academic progress, enrollment status reporting, and length of academic year for students. As it relates to the repayment of loans for a current or upcoming enrollment term, the guidance provides some relief for current students. Where a loan has already been distributed for a term, but the student was unable to begin attendance due to a coronavirus-related closure, the provisions of 34 CFR § 668.21(a)(2)(ii), requiring the institution to notify the servicer of that student’s failure to begin attendance, do not apply. Accordingly, the institution should not notify the servicer, and the student borrower will instead be permitted to repay any Direct Loan funds received under the terms of the promissory note. This also prevents the student from entering repayment within six months of withdrawing if the student withdrew because of a coronavirus-related interruption.
  • Legislation
    • The Supporting Students in Response to Coronavirus Act was introduced in both the House and the Senate on March 13. As it relates to loan repayment, the proposed legislation provides flexibility for secondary education students to ensure continued access to federal financial aid to help remove the financial stress caused by a temporary leave of absence related to COVID-19. The legislation would exempt students from repaying student loans that were taken out for a disrupted term by providing a temporary waiver of Return of Title IV Rules, which require repayment of federal student loans for certain situations. Additionally, the proposed legislation relaxes financial aid rules related to satisfactory academic progress and subsidized loans.
    • On March 19, Sens. Schumer, Murray, Brown, and Warren unveiled an expansive proposal for direct payments for federal student loan borrowers. Under this proposal, the Department of Education would make payments equivalent to the amount due for all federal student loan borrowers (including Direct Loans and FFELs) for the duration of the national emergency declaration. The plan calls for the Department of Education to pay down a minimum of $10,000 for all federal student loan borrowers. The plan would also stop all garnishment of wages, tax refunds, and Social Security benefits, as well as formalizing the previously announced waiver of interest. After the national emergency declaration has been lifted, the senators’ plan would give student loan borrowers a three-month grace period, during which missed payments will not result in fees, penalties, or negative credit reporting.
  • State Action
    • Andrew Cuomo announced on March 17 that student debt owed to the State of New York and referred to the New York Attorney General’s Office for collection will be frozen for the next 30 days. It appears that about 165,000 cases fall within this freeze. The policy also suspends the accrual of interest and fee collection during the freeze. The policy will be reassessed after the 30-day period ends.

Bradley will continue to monitor the coronavirus developments affecting the student lending industry and will provide updates as new information becomes available.