Just a few months ago, we used the magic 8 ball and tried to answer the challenging questions of how the ongoing pandemic and a potential administration change would impact higher education and student lending policy. With the election finally behind us and a new administration in place, three issues have garnered their fair share of headlines.
No. 1: Extension of Federal Student Loan Payment Relief
Passed in response to the economic fallout of the pandemic, the CARES Act included several measures to support colleges and federal student loan borrowers, most notably suspending payments for most federal student loans and lowering interest rates to 0%. This payment relief was initially set to expire at the end of September 2020 but was extended by President Donald Trump, and then extended again to Sept. 30, 2021 by President Joe Biden.
Exactly how and when this payment relief ends will depend on the pandemic and overall state of the economy. If the payment relief ends at the end of September as planned, millions of federal student loan borrowers will have gone 18 months without interest accruing or having to make a payment.
No. 2: Student Loan Debt Forgiveness
Student loan debt forgiveness is proving to be a highly debated topic, even between the president and members of his own party. Some experts argue that 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 and questionable economic stimulus, this debate will surely continue.
On the campaign trail, Biden advocated $10,000 of debt forgiveness for federal student loan borrowers via congressional action. Senators Elizabeth Warren and Chuck Schumer, on the other hand, have pushed for $50,000 of forgiveness via executive action, the legality of which has been called into question. During his recent town hall meeting, President Biden reaffirmed his support for moderate student loan relief over bolder proposals. When asked by an audience member about the possibility of forgiving $50,000 of student loan debt per person, Biden emphatically responded, “I will not make that happen” and then reiterated his support for $10,000 of forgiveness and a more targeted approach through legislative action rather than executive order.
No. 3: Free College
With more than $1.7 trillion in outstanding student loan debt in America, the vast majority of which is held by the federal government, the cost of college is clearly a major issue. Biden has been vocal about his support for two years of tuition-free community college, a concept that has already been deployed to some degree by 25 states. During his campaign, the President also adopted Sen. Bernie Sanders’ proposal to make public colleges and universities tuition-free for all students whose family incomes are below $125,000. Based on a federal and state partnership model, this could be very tricky as states would need to contribute via a matching grant concept and colleges would need to lower tuition to zero.
Even if some type of “free college” policy were implemented, it’s important to remember that “free” is related to tuition, not living expenses. According to a report from the American Enterprise Institute, living expenses are actually a much larger barrier for students than tuition.
Opportunities Abound for Credit Unions
Make no mistake, student loan forgiveness and free college are big, expensive, complex issues, and will require significant efforts from lawmakers. If we shake the magic 8 ball searching for an answer on exactly when and what will happen on these issues, it’s likely we’d see “Cannot predict now”. However, credit unions have significant opportunities right now to help students and families responsibly fund college and take control of their student loan debt. Here’s what to keep in mind as 2021 takes shape:
Altered Landscape For Student Loan Refinance: Because of federal student loan payment relief resulting from the CARES Act, refinancing those specific loans may not be the best decision for borrowers in the near term. Once the refinance is completed with a private lender, the federal benefits are lost forever. That said, many borrowers are confused and seeking guidance about what exactly they should do. Providing insight and advice to help borrowers make good decisions about their student loan debt is critically important. For credit unions partnered with Student Choice, members have access to personal assistance from a College and Repayment Counselor who can help them understand their options. And with rates at historic lows, now is an excellent time for some borrowers to refinance and consolidate, especially those with private student loans or those who previously refinanced their student loans and could benefit by refinancing again. Targeting these borrowers with the right messaging is critical for refinance lending success.
Potential Enrollment Surge This Fall Could Lead To Significant Need For Private Student Loans: As the pandemic unfolded in spring 2020, colleges and students were caught in the middle. Health concerns led to campus closures and virtual learning, and for many families it also led to a change of plans. Undergraduate enrollment in 2020 decreased 3.6% (over 560,200 students from 2019) and included an unprecedented drop in freshman enrollment of 13.1% (or over 327,500 students). Rest assured that colleges are working diligently to bring students back this fall, and undoubtedly many students who deferred enrollment or stayed home last year can’t wait to return to campus. With financially strapped colleges likely to increase tuition and family finances being pinched, private student lending will continue to be an essential, and possibly growing, component of a student’s higher education finance package.
Unique Situations Call For Unique Solutions: To stand out amongst traditional student lenders and emerging fintechs that are aggressively marketing to your next generation of members, credit unions should focus on what makes them different. Offer member-centric solutions that provide guidance, encourage responsible borrowing, and give families peace of mind during stressful times. For credit unions partnered with Student Choice, expert guidance not only comes from a College Access and Repayment Counselor, but also the CUSO’s unique relationship with Edmit that provides credit unions and their members free access to innovative college planning tools. And with the CUSO’s flagship line of credit structure, families can take comfort in multi-year approval to secure funding for an entire college career with just one application. New functionality added in 2020 even gives borrowers the ability to secure their line of credit before they know exactly how much funding they might need, giving them even greater flexibility and control.
While the future is being debated in D.C., it’s clear that credit unions have an important role to play in higher education funding, both today and beyond.