The Shifting Landscape Of Higher Education Finance
How COVID-19 and new leadership could impact student lending policy.
This content originally appeared on creditunions.com.
2020 has proven to be a year unlike any other. Due to the massive impact of the COVID-19 pandemic, family livelihoods, business fortunes, and global economies are shifting in front of our very eyes. Caught in the middle of it all is America’s higher education system.
As the pandemic hit and then spread across the country, students and families were left scrambling, forced to make difficult decisions about returning to college in the fall, choosing a different school, or simply staying home. Colleges have been forced into a new “virtual” reality, taking a huge financial hit in the process with fewer students on campus. And attempting to prop up both sides is the federal government, passing expansive legislation that included direct financial support for colleges and families, as well as benefits for federal student loan borrowers.
But with the pandemic still raging and the election nearly upon us, where does it go from here and what impact will it have on private student lenders? During Credit Union Student Choice’s recent Empower U virtual conference, James Bergeron, president of the National Council of Higher Education Resources, and Scott Patterson, president of Student Choice, broke out the magic 8-ball to try to answer these difficult questions.
CARES Act Impact On Higher Education
Earlier this year, Congress passed the CARES Act in response to the economic fallout of the pandemic. The Act included several measures to support colleges and federal student loan borrowers:
The Higher Education Emergency Relief Fund (HEERF) was established and provides roughly $14 billion in funding to U.S. colleges and universities.
Relief measures for federal student loan borrowers were introduced, including:
Suspension of loan payments.
Interest reduced to 0%.
Stoppage of collections on defaulted loans.
Initially set to expire at the end of September, these borrower benefits have been extended to Dec. 31, 2020 due to the president’s executive order. This extension of benefits not only helps borrowers but also has taken the steam out of the need for Congress to provide additional higher education relief this year.
While the benefits outlined in the CARES Act apply only to borrowers with federal student loans, it’s important to note that most private student lenders, including credit unions partnered with Student Choice, quickly rolled out special forbearance options this spring to help private student loan borrowers navigate repayment during this challenging time.
2021 Policy And Political Forecast: Issues To Watch
As we look beyond the CARES Act, it’s clear that depending on the outcome of the presidential election, 2021 could be a pivotal year for higher education. With many competing policy priorities, it’s fair to assume that higher ed falls somewhere in the middle. In attempting to forecast potential policy moves in this area, here are the key factors and areas to keep an eye on.
New Leadership: Many key positions that influence higher ed policy will have new leaders in 2021, including:
U.S. Secretary of Education and sub-cabinet appointments (current Secretary Betsy Devos has announced her intent to leave the position even if Trump is reelected).
CFPB Director if former Vice President Joe Biden wins the presidency.
Chair of the Senate Health, Education, Labor & Pensions (HELP) Committee, which has broad jurisdiction over education policy (current Chair Lamar Alexander (R-TN) is retiring and not running for reelection).
Presidential Priorities: While President Donald Trump’s priorities for higher education are not fully clear, there has been some discussion around implementing loan limits for Federal Parent Loans for Undergrad Students (PLUS) and Grad PLUS (for Grad students) and promoting income- share agreements as an alternative to federal student lending. It’s likely there would also be a push for continued deregulation of certain aspects of higher education. If Biden wins the presidency, it’s likely that his administration will focus on repackaging Obama-era priorities, such as a federal-state partnership for both community colleges and four-year public institutions. This is code for “free college”, but state budgets have been devastated by the pandemic and few resources are available for new programs and commitments.
Higher Education Act Reauthorization: The Higher Education Act is the main law that encompasses federal student loan programs. Now six years overdue for reauthorization, this Act is a huge bill and there is simply no consensus. While college affordability remains a key concern, there are so many different views that reauthorization remains a giant hurdle.
Increasing Disclosures for Federal Student Loan Borrowers: This is one issue that has bipartisan support across the spectrum. Broad agreement exists for things such as annual loan counseling, annual debt disclosure and potential earnings, and quarterly statements from federal student loan servicers.
Refinancing of Student Loans by the Federal Government: This idea was brought forth by progressive Democrats several years ago, but even Democrats are split on the best use of limited federal funding. Many experts argue that this will benefit those that attended high-cost institutions, and with a projected cost of $60 billion, it’s likely to be a tough sell.
Student Loan Forgiveness: This is another idea popularized by progressive Democrats, but lawmakers are split on whether forgiveness really addresses the root problem of high college costs. As some experts argue, it’s not a progressive policy and “disproportionately helps a segment of the relatively privileged.” Republicans have been strongly opposed, and with a very large price tag, this will be a contentious debate if pursued.
Student Loan Discharge in Bankruptcy: Student loan debt is generally not dischargeable in bankruptcy unless the borrower can prove “undue hardship.” As they have in previous years, Democrats have proposed striking the exemption for both federal and private student loans. A major problem with this approach, which many lawmakers understand, is that new college graduates could qualify for bankruptcy protection. As an alternative, Congress could look to reinstate pre-1998 language that requires borrowers have a repayment history (five or seven years) before qualifying for bankruptcy discharge. For private lenders, the debate around bankruptcy reinforces the importance of having a co-borrower on the loan, as the debt would roll to the co-borrower if the borrower declares bankruptcy. (For reference, nearly 97% of undergraduate student loans originated by Student Choice partner credit unions include a co-borrower.)
Key Takeaway For Private Student Lenders
While the future is murky at best, it’s very clear that the main focus for lawmakers will remain on the federal student loan program, which accounts for 93% of all student loans. Changes to the federal program can certainly impact private student lending, but there are so many issues to be debated that expecting radical changes in the near-term is not realistic. That said, higher education continues to be an important issue to most Americans, and it becomes even more important during economic downturns. With federal funding flat, federal loan limits still in effect, family finances being pinched, and financially strapped colleges likely to increase tuition, private student lending will continue to be an essential — and possibly growing — component of a student’s higher education finance package.
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