Corona Virus and the CARES Act; probably two of the most talked-about topics in the United States in the year 2020. The CARES Act provided a cushion against the economic impacts and effects to millions of Americans, including the students. The Bill proposed an action in which the Federal government was to pause all actions against the student loan defaulters through September 30. The passing of this proposal indeed was a relief to so many people, given the hardship that millennials are passing through.
The CARES Act provided the much-needed relief to students in three areas;
- Student loan payments are paused.
- Interests suspended.
- Collection on the defaulted student loans stopped.
In addition to the actions provided under the CARES Act, the Department of Education also promised a refund of $1.8 billion to 830,000 student loan borrowers from funds collected beginning March 13- the day Coronavirus was declared a national emergency in the united states.
Despite the goodwill of the CARES Act, and its straightforwardness implementation of the proposals put forward has been uneven at best, in some cases, cataclysmic. Here is a detailed breakdown of all there is to know about the successes and failures of the CARES Act in trying to protect the students.
What is garnishment?
In order to understand how the CARES Act provisions were to work, we need to first get familiar with this term- garnishment. The purpose of the student loans is to bring education to the students within reach, however, paying for these loans after graduation requires students to earn some income just to keep up with the repayment. There are some instances where a graduate can’t find a job, hence cannot find a good repayment plan that fits their budget. In situations like this, chances of default are very high and when that happens, a student risks wage garnishment.
Both the Federal and private lenders can and will garnish wages on defaulted loans. For the federal student loans, usually, there is no need for legal judgment against the student- garnishment is allowed administratively, but for the private lenders, there are a series of legal procedures that they need to follow in order for them to bring legal action against you. It is also important to understand that garnishment doesn’t only apply to students, it applies also to parents who have taken out loans for their children. Basically, garnishment applies to anybody who borrows or cosigns on a student loan for somebody else.
Now that you understand what garnishment is, let’s look at how CARES Act failed.
First CARES Act Only Covered A Fraction of The Whole!
While the act was very thorough in making sure that most students benefitted some sort of relief, unfortunately, a good number of students were locked out and left to fend for themselves. Only the government-held federal student loans were covered by the Act. this meant that millions of students who took private loans or commercially-backed federally-guaranteed loans were not covered. And while there were some private lenders who were so willing to provide relief to these students, you cannot compare what there were offering to what the CARES Act had. In addition, the relief they were offering was not legally mandated. As such, while one group was enjoying the federal protection and relief, the other group was struggling and feeling every inch of pain inflicted by the Coronavirus.
Let’s Talk Credit
What you need to understand about the CARES Act is that the provisions were automatic which means that students with the loans did not have to request relief. CARES Act provided that students were not supposed to be harmed or left worse off as a result of this automation. For instance, assuming that a student was on track for a loan forgiveness program, they would still continue with the program and it would reflect that they are making positive progress, even though there were no payments required.
However, even with that, millions of students suffered a loss, especially in their credit when CARES Act suspended payments. In fact, at least one of the U.S. Dept. of Education’s loan servicers improperly reported the borrowers’ loan status to the credit bureaus, which resulted in credit damage. Student loan borrowers have filed a lawsuit.
Garnishment Was Over… Or Was It?
According to the CARES Act provisions, as of March 13, student loan borrowers’ wages would not be garnished. The provision went ahead to state that if your wages had been garnished since that date, you would get a refund. While this was true, the Dept. of Education acted slowly towards the implementation of this provision resulting in over 50,000 student loan borrowers’ continued wage garnishment weeks after the CARES Act was put in effect. The inaction by the Dept. of Education forced these borrowers to file a class-action lawsuit against the Department.
You would think that the Department would hasten efforts to rectify the situation, but nearly two months after the Act was enacted, the department was still struggling to implement the provision against wage garnishment. This action has since resulted in borrowers losing a portion of their paychecks, which is traumatic at this time.
A spokesperson from the Dept. of Education on June 4, 2020, confessed that roughly 6,000 student loan borrowers continue to have their wages garnished and also said that this at least represented a 98.5% decrease in overall wage garnishment since March 13, 2020. “We have made substantial progress getting employers to confirm their actions to suspend wage garnishments,” the spokesperson said also noting that the Dept. has mailed to numerous employers and made efforts to reach out to the ‘non-compliant’ employers constantly.
What About Taxes?
This is one of the areas that most students felt would do much good in aiding a smooth ride through the pandemic. The bill required that the Dept. of Education and the Dept. of Treasury immediately suspend all seizures of the federal tax for the student loan borrowers in default on their federal student loans. And just like the wage garnishment, the Dept. of Education messed this one too, by their slow implementation.
Just to paint out a clear picture of how the Department messed, at least over $2 billion in tax refunds were improperly seized by the government. It is true that some of these refunds have been returned to the borrowers, according to the department, some are still waiting for their refunds. A spokesperson from the education department said, “The only federal student loan borrowers awaiting a refund are those for which Treasury and the Department do not have a valid mailing address. The Department added a feature to its default resolution portal — myeddebt.ed.gov — to provide federal student loan borrowers a quick and easy way to validate their mailing address.”
So What’s Next For Students Loan Borrowers
We’ll have to wait and see, but what’s clear is the fact that the majority are still suffering the effects of losing their jobs which have left so many in debt on top of the student debt. While the CARES Act was very good, it had some shortcomings which perhaps stems from how the Act was written. For instance, leaving private student loans out of the equation was a major shortcoming. Additionally, the Department of Education is to blame for the uneven and cataclysmic implementation of the provisions provided by the act.