Proposals to Extend CARES Act Provisions to Federal Student Loans Not Held by the Department of Education: Frequently Asked Questions

Proposals to Extend CARES Act Provisions to Federal Student Loans Not Held by the Department of Education: Frequently Asked Questions

Proposals to Extend CARES Act Provisions to
June 10, 2020
Federal Student Loans Not Held by the
Alexandra Hegji
Department of Education: Frequently Asked
Analyst in Social Policy

Questions
Kyle D. Shohfi
Analyst in Education Policy
In response to the coronavirus disease 2019 (COVID-19) pandemic, the Coronavirus Aid, Relief,

and Economic Security Act (CARES Act; P.L. 116-136) provides several types of benefits to
borrowers of select federal student loans. Perhaps most notably, the CARES Act specifies that

through September 30, 2020, interest shall not accrue, payments shall be suspended, and
involuntary collection of defaulted loans shall be suspended on loans made under the Direct Loan program, as well as on
loans made under the Federal Family Education Loan (FFEL) program that “are held by the Department of Education.” The
Department of Education (ED) subsequently extended these benefits to loans made under the Perkins Loan program that are
held by ED. Federal student loans that are not eligible for these benefits include FFEL program loans held by commercial
lenders and guaranty agencies (hereinafter, commercially held FFEL program loans) and Perkins Loan program loans held
by institutions of higher education (hereinafter, institutionally held Perkins Loans).
This report addresses frequently asked questions related to commercially held FFEL program loans and institutionally held
Perkins Loans and issues Congress might examine should it consider extending loan benefits similar to those provided under
the CARES Act to borrowers of such loans. Primary topics examined include the following:
 key differences between ED-held and commercially held FFEL program loans, and key differences
between ED-held and institutionally held Perkins Loans;
 whether Congress could require holders of commercially held FFEL program loans and institutionally held
Perkins Loans to extend CARES Act benefits to borrowers; and
 how holders and borrowers of commercially held FFEL program loans and institutionally held Perkins
Loans might be affected should Congress require loan holders to extend CARES Act benefits to borrowers.
For additional information on student loan repayment flexibilities and debt relief provisions that may be available to
borrowers facing financial difficulties resulting from the pandemic, see CRS Report R46314, Federal Student Loan Debt
Relief in the Context of COVID-19.

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Contents
Federal Family Education Loan Program ............................................................................ 1
What is the difference between ED-held and commercial y held FFEL program
loans?.................................................................................................................... 1
Under what circumstances may FFEL program loans be transferred to ED? ........................ 2
What are guaranty agencies and how might they be affected by extending relief to
borrowers? ............................................................................................................. 3
What are the different payment streams to lenders and guaranty agencies of
commercially held FFEL program loans? .................................................................... 4
Payment Streams to Lenders .................................................................................. 4
Payment Streams to Guaranty Agencies ................................................................... 4
Would extending CARES Act benefits to commercial y held FFEL program loans
affect any of these payments?.................................................................................... 5
Payment Streams to Lenders .................................................................................. 5
Payment Streams to Guaranty Agencies ................................................................... 6
Could Congress require commercial holders of FFEL program loans to extend relief
to borrowers? ......................................................................................................... 6
Economic Impact ................................................................................................. 7
Investment-Backed Expectations ............................................................................ 8
Character of the Governmental Action ..................................................................... 9
The Amount of Compensation ................................................................................ 9
Could extending CARES Act benefits to commercial y held FFEL program loans hurt
the industry or result in any job loss? ....................................................................... 10
How would extending CARES Act benefits to commercial y held FFEL program
loans affect borrowers? .......................................................................................... 10
Perkins Loan Program ................................................................................................... 11
What is the difference between ED-held and institutionally held Perkins Loans? ............... 11
Would extending CARES Act benefits to institutional y held Perkins Loans affect an
IHE's expected payment stream, and if so, would they need to be reimbursed for
any losses? ........................................................................................................... 12
How would extending CARES Act benefits to institutional y held Perkins Loans
affect borrowers? .................................................................................................. 13

Contacts
Author Information ....................................................................................................... 13

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CARES Act and Federal Student Loans Not Held by ED: FAQ

n March 27, 2020, in response to the coronavirus disease 2019 (COVID-19) pandemic,
Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act,
O P.L. 116-136). Section 3513 of the act provides several types of loan benefits to
borrowers of select federal student loans. Perhaps most notably, the CARES Act specifies that
through September 30, 2020, interest shal not accrue, payments shal be suspended, and
involuntary collection (e.g., wage garnishment, offset of federal income tax refunds) on defaulted
loans shal be suspended on loans made under the Direct Loan program, as wel as on loans made
under the Federal Family Education Loan (FFEL) program that “are held by the Department of
Education.”1 The Department of Education (ED) subsequently extended these benefits to loans
made under the Perkins Loan program that are held by ED.2 Federal student loans that are not
eligible for these benefits include FFEL program loans held by commercial lenders and guaranty
agencies (hereinafter, commercially held FFEL program loans) and Perkins Loan program loans
held by institutions of higher education (hereinafter, institutionally held Perkins Loans).3
Congress has shown interest in extending student loan benefits provided under the CARES Act to
borrowers of commercial y held FFEL program loans and institutional y held Perkins Loans.4
This report addresses frequently asked questions (FAQs) related to commercial y held FFEL
program loans and institutional y held Perkins Loans and issues Congress might examine should
it consider extending loan benefits similar to those provided under the CARES Act to borrowers
of such loans.
Federal Family Education Loan Program
What is the difference between ED-held and commercially held
FFEL program loans?
The FFEL program is a federal student loan program, authorized under Title IV-B of the Higher
Education Act of 1965 (HEA; P.L. 89-329, as amended), under which student loans were made to
students and their families to help them finance postsecondary education expenses. While
authority to make new loans under the program was terminated on July 1, 2010,5 borrowers of
outstanding FFEL program loans remain responsible for making their loan payments.

1 T he CARES Act applies to loans made under HEA T itle IV, Part D and Part B. Part D authorizes the Direct Loan
program. Part B authorizes the FFEL program and previously authorized other federal student loan programs, such as
the Guaranteed Student Loan (GSL) program. FFEL program loans were those most recently made available to
borrowers under Part B and are the majority of outstanding Part B loans. Part B loans other than FFEL program loans
are not addressed in this report.
2 ED also extended these benefit s to defaulted Health Education Assistance Loan (HEAL) program loans. HEAL
program loans were made by the Department of Health and Human Services (HHS) and were last made available to
students in 1999. T he Consolidated Appropriations Act, 2014 ( P.L. 113-76) transferred administration of the program
to ED. Between March 13, 2020, and September 30, 2020, the interest rate for defaulted HEAL program loans is set to
0% and collections activities for those loans are suspended. Office of Federal Student Aid, “ Coronavirus and
Forbearance Info for Students, Borrowers, and Parents,” https://studentaid.gov/announcements-events/coronavirus
(accessed June 5, 2020). HEAL program loans will not be further addressed in this report.
3 For additional information on the federal student loan debt relief afforded to borrowers in response to COVID -19, see
CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19.
4 See, e.g., T he Heroes Act, H.R. 6800 (116th Congress).
5 SAFRA Act, T itle II-A of the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152).
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Under the FFEL program, private sector and state-based lenders originated loans funded with
nonfederal capital.6 The federal government guarantees lenders against loss due to borrower
default; death; permanent disability; or, in limited instances, bankruptcy. Private sector and state-
based lenders retain ownership of the loans and perform loan servicing functions such as bil ing
borrowers, collecting loan payments, and initiating collections work on defaulted loans. State and
nonprofit guaranty agencies (GAs) receive federal funds to play the lead role in administering
many aspects of the FFEL program related to the loan guarantee, including taking possession of
defaulted loans to initiate collections work and reimbursing lenders when loans are placed in
default. In general, loan terms and conditions are prescribed in statute.
There are several circumstances under which a FFEL program loan may be transferred to ED
(discussed below). Upon transfer, FFEL program loan terms and conditions for the borrowers
general y remain the same (they may vary slightly in specified instances),7 but ownership and
responsibility for loan administration changes from lenders or GAs to ED (via its contracted loan
servicers and private collection agencies).
Under what circumstances may FFEL program loans be transferred
to ED?
When an FFEL borrower defaults, the holder of the loan (which may be the original lender or a
subsequent purchaser of the loan) files an insurance claim with the guaranty agency (discussed
below). Upon payment of the insurance claim by the GA, the holder assigns the defaulted loan to
the GA, which in turn files a claim with ED for a reinsurance payment.8 Upon receipt of a
reinsurance claim payment on a defaulted loan, the GA assumes responsibility for attempting to
collect on the loan. However, at any time the Secretary of Education may require a GA to assign a
defaulted loan to ED for collections (known as subrogation) as a means of protecting the “Federal
fiscal interest” in the debt.9 Regulatory provisions specify certain circumstances requiring
mandatory subrogation, including aged accounts and defaulted loans of federal employees.10 In
most instances, after four years GAs assign to ED defaulted FFEL program loans not in
repayment.11 ED becomes the owner of a defaulted FFEL program loan and becomes responsible
for servicing and collecting on it (via contracted third parties) after the loan is assigned to it.

6 For additional information on FFEL program loans and the administration of the federal loan guarantee, see CRS
Report RL33674, The Adm inistration of the Federal Fam ily Education Loan and William D. Ford Direct Loan
Program s: Background and Provisions (archived, available to congressional clients upon request).
7 CARES Act student loan relief provisions are one instance in which FFEL program loan terms and conditions may
vary depending on whether ED or a lender or GA holds the loans. As another example, if a FFEL program loan
borrower received a borrower defense to repayment discharge of their ED-held FFEL program loans, he or she may be
reimbursed for payments previously made to ED while ED held the loan. However, payments previously made to a
private holder of an FFEL program loan prior to being transferred to ED may not be reimbursed. Rather, borrowers
would need to pursue reimbursement directly from the previous private FFEL holder. For additional information, see
CRS Report R44737, The Closure of Institutions of Higher Education: Studen t Options, Borrower Relief, and Other
Im plications.
8 Similarly, when a borrower of a guaranteed loan is eligible for loan discharge, the loan holder files an insurance claim
with the GA, and upon payment of the insurance claim by the GA, the GA in turn files a claim with ED for a
reinsurance payment. However, in general, loans eligible for discharge are not assigned to the GA.
9 20 U.S.C. § 1078(c)(8).
10 34 C.F.R. § 682.409.
11 U.S. Department of Education, Office of Federal Student Aid, FY2019 Annual Report, p. 122.
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Second, in May 2008, in response to concerns about the continued availability of FFEL program
loans due to several FFEL program lenders curtailing or ceasing participation in the program, the
Ensuring Continued Access to Student Loans Act of 2008 (ECASLA; P.L. 110-227) granted ED
the temporary authority to purchase loans made under the FFEL program. In October 2008, P.L.
110-350 extended this authority through July 1, 2010. After ED purchased loans made under the
FFEL program, ownership and control of loan servicing and collection were transferred to it.12
Final y, GAs are required to sel rehabilitated loans13 to commercial lenders when practicable.
Beginning on July 1, 2014, GAs have been required to assign rehabilitated FFEL program loans
to ED if they are unable to sel the loans to a commercial lender.14
As of December 31, 2019, approximately 11.8 mil ion borrowers owed about $257.2 bil ion in
FFEL program debt.15 Of that, ED held approximately $87.7 bil ion, representing debt for
between 3.3 mil ion and 6 mil ion borrowers,16 and private lenders and GAs held $169.3 bil ion,
representing debt for between 6.0 mil ion and 7.2 mil ion borrowers.17
What are guaranty agencies and how might they be affected by
extending relief to borrowers?
GAs are state-based or private, nonprofit organizations that entered into agreements with ED18 to
administer the federal insurance that protects FFEL program lenders against loss stemming from
borrower default; death; permanent disability; or, in limited instances, bankruptcy.19 As noted
above, when a borrower of a guaranteed loan defaults on a loan, the holder of the loan files an
insurance claim with the GA. Upon payment of the insurance claim by the GA, the holder assigns
the defaulted loan to the GA, which in turn files a claim with ED for a reinsurance payment.20
GAs are also responsible for handling initial collections work on defaulted loans and for
administering other aspects of the program, such as providing default aversion assistance to

12 For additional information on ECASLA, see CRS Report RL34452, The Ensuring Continued Access to Student
Loans Act of 2008.
13 Loan rehabilitation is the process by which a borrower may bring a loan out of default by making nine monthly
payments on a defaulted loan within 20 days of the due date during a period of 10 consecutive months. 20 U.S.C. §
1078-6(a)(1)(A).
14 20 U.S.C. § 1078-6(a)(1)(A)(ii).
15 U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “ Federal Student
Aid Portfolio Summary,” https://studentaid.gov/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls.
16 Approximately 3.17 million borrowers have FFEL program loans placed with ED-contracted loan servicers, and
approximately 2.9 million borrowers have FFEL program loans placed with the ED -contracted Default Management
System. An individual may have FFEL pro gram loans placed with both ED-contracted loan servicers and the Default
Management System; thus, the unduplicated count of FFEL program borrowers with loans held by ED is unknown.
U.S. Department of Education, Office of Federal Student Aid, Federal Studen t Aid Data Center, “ Location of Federal
Family Education Loan Program Loans,” https://studentaid.gov/sites/default/files/fsawg/datacenter/library/
LocationofFFELPLoans.xls.
17 Approximately 6 million borrowers have FFEL program loans held by commercial lenders, and approximately 1.2
million borrowers have FFEL program loans held by GAs. An individual borrower may have FFEL program loans held
by a commercial lender and a GA; thus, the unduplicated count of FFEL program borrowers with loans that are not
held by ED is unknown. U.S. Department of Education, Office of Federal Student Aid, Fe deral Student Aid Data
Center, “Location of Federal Family Education Loan Program Loans,” https://studentaid.gov/sites/default/files/fsawg/
datacenter/library/LocationofFFELPLoans.xls.
18 20 U.S.C. § 1078(b) and (c).
19 20 U.S.C. §§ 1078(c) and 1087; 34 C.F.R. Part 682, Subpart D.
20 34 C.F.R. § 682.404.
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lenders upon their request after a loan has been delinquent for at least 60 days.21 Similarly, when a
borrower of a guaranteed loan is eligible for loan discharge, the loan holder files an insurance
claim with the GA, and upon payment of the insurance claim by the GA, the GA in turn files a
claim with ED for a reinsurance payment. However, in general, loans eligible for discharge are
not assigned to the GA.
If benefits provided to borrowers under the CARES Act were extended to borrowers of
commercial y held FFEL program loans, GA activities may be affected. With loan payments
suspended, borrowers presumably would not become newly delinquent or in default on their
loans. As a result, GAs may experience a decrease in the volume of insurance claims or default
aversion cases submitted by lenders. If involuntary collection activities were suspended, GAs
may experience a decrease in the volume of collections made on defaulted loans. Such decreases
in collections volume could potential y affect GA payment streams, as discussed below.
What are the different payment streams to lenders and guaranty
agencies of commercially held FFEL program loans?
Payment Streams to Lenders
Commercial lenders of FFEL program loans receive revenue from a number of different payment
streams. Lenders receive monthly payments of principal and interest due on loans from borrowers
(or quarterly payments of interest due from the federal government during borrowers’ in-school
periods, grace periods, and deferment periods in the case of Subsidized [FFEL program] Stafford
loans22). Lender yields are determined by rate-setting formulas that are statutorily established in
the HEA and that vary depending on when the loan was original y disbursed. Maximum borrower
interest rates23 (also known as applicable interest rates)24 are also determined by statute and vary
depending on when the loan was original y disbursed.25 When the borrower interest rate is below
the market-indexed lender rate, the federal government pays the lender a special al owance equal
to the difference.26 This special allowance payment (SAP) is determined and paid quarterly.
Payment Streams to Guaranty Agencies
GAs receive a separate set of payment streams, some of which come from the federal government
and some of which come from borrowers. While some revenue streams associated with the
origination of new FFEL program loans were curtailed in 2010 when the authority to make new
FFEL program loans was eliminated,27 there are several remaining revenue streams tied to
outstanding FFEL program loans.

21 20 U.S.C. § 1078(l).
22 34 C.F.R. § 682.304.
23 At the lender’s discretion, actual interest rates paid by borrowers may be less than the maximum rate specified in
statute. 20 U.S.C. § 1077a(n).
24 Regulations define applicable interest rate as “the maximum annual interest rate that a lender may charge under the
[Higher Education] Act on a loan.” 34 C.F.R. § 682.200(b).
25 20 U.S.C. § 1077a.
26 20 U.S.C. § 1087-1. For loans made on or after April 1, 2006, lenders must rebate excess interest payments to the
federal government when the borrower rate exceeds the lender rate (20 U.S.C. § 1087 -1(b)(2)(I)(v)).
27 For instance, loan processing and issuance fees, default fees, and insurance premiums were authorized upfront fees
collected near the time of disbursement, but no new FFEL program loans have been disbursed since June 30, 2010.
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On a quarterly basis, the federal government pays GAs an account maintenance fee equal to
0.06% of the original principal amount of outstanding loans for which insurance was issued.28
GAs may also receive a default aversion fee as an incentive to work with borrowers to bring
delinquent loans into current status. The federal government pays GAs a default aversion fee
equal to 1% of unpaid principal and accrued interest on a loan for which a default claim is not
paid within 300 days after the loan is 60 days delinquent.29
When a loan has gone into default, and a GA has paid a lender’s insurance claim, the GA then
files a claim with the federal government for a reinsurance payment. Reinsurance payments are
based on a federal y determined rate and deposited in the guarantor’s Federal Fund—its local y
held federal reserves.30 While reinsurance payments cover the majority of the cost of the lender’s
insurance claim and certain administrative costs, the reinsurance rate drops if the guarantor has
default claims that are high compared to the loans in repayment.31
In addition to reinsurance payments made by the federal government, GAs may also seek
collection payments on defaulted loans assigned to them. GAs are authorized to retain the
complement of the reinsurance rate32 plus 16% of any collection payments made to them.33 GAs
are also authorized to charge borrowers col ection fees34 and retain a percentage of the proceeds
from the sale of a rehabilitated loan.35
Would extending CARES Act benefits to commercially held FFEL
program loans affect any of these payments?
Payment Streams to Lenders
Extending CARES Act benefits to commercial y held FFEL program loans may affect some of
the payments described above. For lenders, temporarily suspending interest accrual and
suspending payments for borrowers would mean forgoing monthly payments of principal and
interest. Depending on the specific policy implemented, SAPs, to which loan holders have a
statutorily specified contractual right,36 may be affected. For example, if Congress specified that
the applicable interest rate used to calculate SAPs during the period of interest suspension would
be 0%, SAPs would increase relative to their amounts when SAPs are calculated using the HEA-
specified maximum borrower rate, and forgone interest revenue could potential y be made up on
a quarterly basis by those increased special al owance payments. If, by contract, Congress
specified that SAPs would continue to be calculated using applicable interest rates currently
specified in the HEA, they would not change and therefore would not make up for the forgone
interest revenue.

28 20 U.S.C. § 1087h(b).
29 20 U.S.C. § 1078(l). A default aversion fee may only be paid on a loan once.
30 20 U.S.C. § 1072a(c).
31 20 U.S.C. § 1078(c).
32 For example, if the reinsurance rate were 95%, the complement would be 5%.
33 20 U.S.C. § 1078(c)(6)(A)(i)(II).
34 20 U.S.C. § 1078(c)(6).
35 20 U.S.C. §1078-6(a)(1)(D)(i)(II).
36 20 U.S.C. § 1087-1(b)(3).
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Payment Streams to Guaranty Agencies
For GAs, account maintenance fees would be uninterrupted, but because of suspended payments
for borrowers, revenue derived from default aversion or collection activities may decline. With
loan payments suspended, borrowers presumably would not become newly delinquent or default
on their loans; thus, default aversion fees and collection payments would not be paid to GAs.
However, depending on the specific policy implemented, GAs may be able to receive revenue
derived from loans that were already delinquent or in default status. For instance, because the
CARES Act specifies that suspended payments should be counted toward loan rehabilitation
payments, it is possible that some loans assigned to GAs wil become fully rehabilitated during
the period of suspended payments and eligible for resale, resulting in revenue for the GAs.
Could Congress require commercial holders of FFEL program loans
to extend relief to borrowers?37
As noted above, applying Section 3513 to commercial y held FFEL program loans could cause
lenders to lose income they would ordinarily expect to receive under the terms of their loan
contracts with borrowers, and could likewise cause GAs to lose income they would ordinarily
expect to receive under their agreements with ED if specified contingencies occur.38 Legislative
proposals to apply those provisions to commercial y held FFEL program loans might therefore
implicate the U.S. Constitution’s Takings Clause, which prohibits the federal government from
taking private property39 for public use unless it pays the owner “just compensation”40—that is,
unless the government places the owner “in the same position monetarily as he would have
occupied if his property had not been taken.”41 “Just compensation” usual y means the market
value of the property taken.42

37 CRS Legislative Attorneys Kevin M. Lewis and Sean M. Stiff prepared the legal analysis in this subsection of the
report.
38 As discussed above, if Congress passed a statute applying Section 3513’s interest accrual suspension provisions to
commercially held FFEL program loans, that law might also contain language increasing the SAPs to which loan
holders are statutorily and contractually entitled. See infra “ Payment Streams to Lenders.” T hat increase could offset
some of the income that holders might otherwise lose under Section 3513, which could in turn affect the T akings
Clause analysis discussed in this section. See infra “ Economic Impact” and “ T he Amount of Compensation.”
39 Courts have held that the T akings Clause applies when the federal government takes property from a state or
municipal entity just as it applies when the federal government attempts to take property from a private owner. See,
e.g., United States v. 50 Acres of Land, 469 U.S. 24, 31 (1984) (“ The text of the Fifth Amendment certainly does not
mandate a more favorable rule of compensation for public condemnees than for private parties.... When the United
States condemns a local public facility, the loss to the public entity, to the persons served by it, and to the local
taxpayers may be no less acute than the loss in a taking of private property. T herefore, it is most reasonable to construe
the reference to ‘private property’ in the T akings Clause of the Fifth Amendment as encompassing the property of state
and local governments when it is condemned by the United States. Under this construction, the same principles of just
compensation presumptively apply to both private and public condemnees.”). T hus, the principles described in this
section would apply to commercially held FFEL program loans held by state-based lenders and state-based GAs just as
they would apply to private lenders and nonprofit GAs.
40 See U.S. CONST. amend. V (“[N]or shall private property be taken for public use, without just compensation.”).
41 Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 473 -74 (1973) (quoting United States v.
Reynolds, 397 U.S. 14, 16 (1970)).
42 See, e.g., 50 Acres, 469 U.S. at 29 (“ T he Court has repeatedly held that just compensation normally is to be measured
by ‘the market value of the property at the time of the taking contemporaneously paid in money’ ... Deviation from this
measure of just compensation has been required only ‘when market value has been too difficult to find, or when its
application would result in manifest injustice to the owner or public.’”) (quoting Olson v. United States, 292 U.S. 246,
255 (1934); United States v. Commodities T rading Corp., 339 U.S. 121, 123 (1950)).
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Although courts have recognized that contractual rights can constitute property rights that
implicate the Takings Clause,43 not al governmental regulations that affect a party’s contractual
rights trigger a constitutional obligation to pay the affected parties just compensation.44 Courts
general y consider three factors (cal ed the “Penn Central factors”)45 when determining whether a
law affecting a party’s contractual interests constitutes a “regulatory taking”—i.e., a taking
caused by regulating the use of private property rather than by directly appropriating it—that
requires just compensation:46
1. “[t]he economic impact of the regulation on the claimant”;
2. “the extent to which the regulation has interfered with distinct investment-backed
expectations”; and
3. “the character of the governmental action.”47
Applying the Penn Central factors is a fact-specific inquiry.48 Thus, as explained below, CRS
cannot conclusively predict how a court would apply these factors if Congress applied the
CARES Act’s interest, payment, and involuntary collection suspension provisions to
commercial y held FFEL program loans without compensating lenders and GAs for their lost
income streams.
Economic Impact
Assessing the “economic impact” of a putative regulatory taking is a fact-intensive determination.
Although courts general y require the party chal enging the regulation to prove a “serious
financial loss” to recover just compensation,49 existing judicial precedent does not establish
bright-line rules for determining which financial losses are “serious” enough to require just
compensation.50 Stil , if applying the CARES Act’s interest, payment, and involuntary collection
suspension provisions to commercial y held FFEL program loans would cause holders to lose
only a smal percentage of their expected income streams, a court might wel hold that the
infringement on those holders’ contractual rights was insufficiently “serious” to require just
compensation.51

43 See, e.g., U.S. T r. Co. of N.Y. v. New Jersey, 431 U.S. 1, 19 n.16 (1977) (“Contract rights are a form of property and
as such may be taken for a public purpose provided that just compensation is paid.”).
44 See, e.g., Penn. Coal Co. v. Mahon, 260 U.S. 393, 413 (1922) (“Government hardly could go on if to some extent
values incident to property could not be diminished without paying for every such change in the general law.”).
45 See, e.g., Bridge Aina Le‘a, LLC v. State of Hawaii Land Use Comm’n, 950 F.3d 610, 62 5 (9th Cir. 2020).
46 See, e.g., CRS Legal Sidebar LSB10434, COVID-19 Response: Constitutional Protections for Private Property
(discussing regulatory takings).
47 See, e.g., Penn Cent. T ransp. Co. v. Cit y of New York, 438 U.S. 104, 124 (1978).
48 See, e.g., Ark. Game & Fish Comm’n v. United States, 568 U.S. 23, 31 -32 (2012) (“[N]o magic formula enables a
court to judge, in every case, whether a given government interference with property is a taking . . . . [M]ost takings
claims turn on situation-specific factual inquiries.”).
49 See, e.g., Cienega Gardens v. United States, 503 F.3d 1266, 1340 (Fed. Cir. 2007) (quoting Loveladies Harbor, Inc.
v. United States, 28 F.3d 1171, 1177 (Fed. Cir. 1994)).
50 See, e.g., id. (“T here is not ... ‘an automatic numerical barrier preventing compensation, as a matter of law, in cases
involving a smaller percentage diminution in value.’”) (quoting Yancey v. United States, 915 F.2d 1534, 1539, 1541
(Fed. Cir. 1990)); Walcek v. United States, 49 Fed. Cl. 248, 271 (2001) (“ [C]ourts have often struggled with the
dichotomy between compensable ‘partial takings’ and noncompensable ‘mere diminutions’ .... ”).
51 See, e.g., Walcek, 49 Fed. Cl. at 271 (“[T ]his court has ... relied on diminutions well in excess of 85 percent before
finding a regulatory taking.”).
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Courts also consider whether the chal enged regulation is permanent or temporary when
evaluating the regulation’s economic impact.52 Although a regulation that only applies for a short
period is less likely to constitute a taking than one that applies for longer,53 even temporary
takings of private property sometimes require the government to pay the owner just
compensation.54 Thus, it is difficult to confidently predict whether Section 3513’s temporary
nature would relieve the federal government of the obligation to compensate lenders and GAs if
Congress applied Section 3513 to commercial y held FFEL program loans.
Investment-Backed Expectations
When assessing whether a regulation impermissibly interferes with an entity’s “distinct
investment-backed expectations,” some courts consider the following:
 “whether the plaintiff operated in a ‘highly regulated industry’”;
 “whether the plaintiff was aware of the problem that spawned the regulation at
the time it purchased the al egedly taken property”; and
 “whether the plaintiff could have ‘reasonably anticipated’ the possibility of such
regulation in light of the ‘regulatory environment’ at the time of purchase.”55
It is uncertain how a court might apply those factors in the context of commercial y held FFEL
program loans.56 On one hand, the fact that the federal government extensively regulates the
FFEL program57 could suggest that applying Section 3513 of the CARES Act to commercial y
held FFEL program loans would not effect a compensable regulatory taking.58 On the other hand,
FFEL lenders likely could not have “reasonably anticipated” when they originated their loans that
the COVID-19 pandemic would spur Congress to freeze their income streams in the future.59
The investment-backed expectations analysis may vary depending on whether the entity bringing
the Takings Clause chal enge is a lender or a GA. A lender who issued a loan expecting a
particular income stream associated with loan interest accrual might have stronger investment-

52 See, e.g., Cienega Gardens, 503 F.3d at 1279 (“[T ]he court must carefully consider the duration of the restriction
under the economic impact prong.”).
53 See, e.g., id. at 1277 (“[E]xisting takings law requires consideration of the duration of the legislation as part of the
takings analysis.”); Hankinson v. U.S. Dep’t of Hous. & Urban Dev., No. 10 -193, 2010 WL 3364116, at *3 (E.D. Pa.
Aug. 24, 2010) (“Analyzing temporary regulatory takings claims includes consideration of ... the duration of the
restriction.”).
54 See, e.g., Ark. Game & Fish Comm’n v. United States, 568 U.S. 23, 32 (2012) (“[T]akings temporary in duration can
be compensable.”).
55 See, e.g., Appolo Fuels, Inc. v. United States, 381 F.3d 1338, 1349 (Fed. Cir. 2004) (quoting Commonwealth Edison
Co. v. United States, 271 F.3d 1327, 1348 (Fed. Cir. 2001) (en banc)).
56 Cf., e.g., Philip Morris, Inc. v. Reilly, 312 F.3d 24, 36 (1st Cir. 2002) (“Despite the importance of reasonable
investment -backed expectations under the Penn Central framework, the courts have struggled to adequately define this
term.”).
57 See, e.g., Chae v. SLM Corp., 593 F.3d 936, 944 (9th Cir. 2010) (“[T]he FFELP sets the maximum interest rate that a
lender may charge, depending on the type of loan and the date when it was taken out.”) (citing 20 U.S.C. § 1077a).
58 Cf. Educ. Assistance Corp. v. Cavazos, 902 F.2d 617, 626 -27 (8th Cir. 1990) (concluding that a GA had “no
ownership interest in its reserve fund” under a predecessor to the FFEL program because of “ the extensive federal
regulation” of that fund).
59 Cf. Appolo Fuels, 381 F.3d at 1349 (quoting Commonwealth Edison Co. v. United States, 271 F.3d 1327, 1348 (Fed.
Cir. 2001) (en banc)).
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backed expectations than a GA whose ability to collect income on a FFEL program loan varies
depending on the loan’s status.
Character of the Governmental Action
As for the “character of the governmental action” prong of the Penn Central framework, the
Supreme Court has explained that “[a] ‘taking’ can more readily be found when the interference
with property can be characterized as a physical invasion by government than when interference
arises from some public program adjusting the benefits and burdens of economic life to promote
the common good.”60 The fact that applying Section 3513 of the CARES Act to commercial y
held FFEL program loans would be more like the latter type of interference with private property
than the former might therefore weigh against a finding that doing so would effect a compensable
regulatory taking.61
The Amount of Compensation
If Congress wishes to mitigate some of the uncertainty surrounding whether applying Section
3513 of the CARES Act to commercial y held FFEL program loans would violate the Takings
Clause—or, if Congress prefers that loan holders receive some compensation for their lost income
streams—it could pay lenders and GAs to compensate them for the losses they sustain.62
Congress could structure compensation in several ways. As one example, Congress might direct
ED to make payments during the suspension period to a holder of a commercial y held FFEL
program loan,63 specify that payment amounts are available only as provided in an
appropriation,64 and provide that appropriation.
Whether or not Congress provides payments to lenders or GAs, through changes in the HEA or
otherwise, it is possible that lenders, GAs, or both, could sue, claiming that the federal
government has taken their private property without providing the just compensation due under
the Constitution.65 A litigant could potential y file such a lawsuit under the Tucker Act, which
grants the U.S. Court of Federal Claims “jurisdiction to render judgment upon any claim against
the United States founded ... upon the Constitution.”66 The Supreme Court has explained that this
phrase includes a federal takings claim.67 As noted above, paying the owner the property’s market
value is usual y sufficient to satisfy the just compensation requirement when the government
takes property for public use.68 That said, if a court found it too difficult to calculate the market

60 Penn Cent. T ransp. Co. v. City of New York, 438 U.S. 104, 124 (1978) (internal citations omitted).
61 Cf. id.
62 See, e.g., Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 473 -74 (1973) (quoting United
States v. Reynolds, 397 U.S. 14, 16 (1970)) (explaining that the just compensation requirement places the owner “ in the
same position monetarily as he would have occupied if his property had not been taken”).
63 Cf. 20 U.S.C. § 1078(a)(3)(i)(II) & (b)(1)(M) (specifying the periods during which “interest shall accrue on and be
paid by the Secretary” for commercially held FFEL loans).
64 According to the U.S. Court of Appeals for the Federal Circuit, language of this type limits the federal government’s
liability under a statutory benefits program to the amount appropriated by Congress. See Prairie Cnty. v. United States,
782 F.3d 685, 689 (Fed. Cir. 2015) (reaffirming prior precedent explaining how Congress may limit the government’s
obligation to make payments under a statutory benefits program) .
65 If Congress provides suspension-period compensation, the litigant might claim that Congress’s action falls short of
the just compensation amount required under the Fifth Amendment.
66 28 U.S.C. § 1491(a)(1).
67 See Knick v. T wp. of Scott, 139 S. Ct. 2162, 2170 (2019).
68 See, e.g., United States v. 50 Acres of Land, 469 U.S. 24, 29 (1984) (“The Court has repeatedly held that just
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value of the affected payment streams, or if the court determined that paying that owner the
prevailing market value would be manifestly unjust, it might require the government to pay
lenders and GAs a different amount.69 Through a statute commonly referred to as the “Judgment
Fund,” Congress has appropriated, on a permanent basis, “necessary amounts” to pay such
judgments.70
Could extending CARES Act benefits to commercially held FFEL
program loans hurt the industry or result in any job loss?
Extending CARES Act benefits to commercial y held FFEL program loans could potential y
affect the industry beyond the forgone revenue streams described in the previous section. For
lenders, suspending payments for borrowers would mean not only pausing interest payments but
also pausing the repayment of principal. Diminished cash flow may hinder a loan holder’s ability
to cover its payment obligations, such as bonds it has issued to investors in the course of
securitization. More general y, a pause in principal repayments may incur an opportunity cost for
lenders, as reduced liquidity could preclude other profitable business activities.
For both lenders and GAs, extending CARES Act benefits to commercial y held FFEL program
loans could affect the amount of borrower-driven work requiring labor hours. For instance, loan
holders may experience an increase in demand for customer support as borrowers seek to
navigate the new benefits provided by the policy. Additional y, loan holders and GAs would need
to act to suspend automatic payments, such as from borrowers, their employers, or other sources.
On the other hand, if borrowers were not required to make any payments for a period of time,
certain business functions, such as loan rehabilitations and collection activities, may experience a
decrease in activity. These potential impacts on the industry could have implications for the
number of jobs required.
How would extending CARES Act benefits to commercially held
FFEL program loans affect borrowers?
While CARES Act provisions do not apply to commercial y held FFEL program loans, ED has
issued guidance stating that FFEL program lenders may extend CARES Act-type loan benefits to
their FFEL borrowers. Among other benefits, ED has stated lenders may provide to borrowers of
commercial y held FFEL program loans “the same zero percent interest and cessation of
payments” options and default collection flexibilities similar to those currently available to ED-
held federal student loan borrowers via the CARES Act.71

compensation normally is to be measured by ‘the market value of the property at the time of the taking
contemporaneously paid in money.’”) (quoting Olson v. United States, 292 U.S. 246, 255 (1934)).
69 See, e.g., id. (“Deviation from this measure of just compensation has been required ... ‘when market value has been
too difficult to find, or when its application would result in manifest injustice to the owner or public.’”) (quoting United
States v. Commodities T rading Corp., 339 U.S. 121, 123 (1950)).
70 See 31 U.S.C. § 1304(a)(1) (appropriating “necessary amounts” “to pay final judgments, awards, compromise
settlements, and interest and costs specified in the judgments or otherwise authorized by law” where (among other
things) payment “ is not otherwise provided for”).
71 U.S. Department of Education, Office of Postsecondary Education, Electronic Announcement, “ UPDAT ED
Guidance for interruptions of study related to Coronavirus (COVID-19),” April 3, 2020, https://ifap.ed.gov/electronic-
announcements/040320UPDATEDGuidanceInterruptStudyRelCOVID19 .
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Extending CARES Act benefits to borrowers with commercial y held FFEL program loans would
enable them to access new benefits that may not otherwise be available because their lenders have
not opted to extend such benefits to them. However, there may be considerations regarding how
extending CARES Act provisions to commercial y held FFEL program loans may interact with
loan benefits otherwise made available to borrowers by their lenders.
Some borrowers have already received relief through voluntary actions taken by the commercial
holders of their loans. For instance, several states and the District of Columbia have entered into
voluntary agreements with commercial student loan holders to postpone payments for three
months, report loans favorably to the credit bureaus, help borrowers enroll in income-driven
repayment plans,72 and suspend collection lawsuits.73 Notably, interest continues to accrue during
the period of suspended payments in the voluntary agreements. Extending CARES Act benefits to
commercial y held FFEL program loans would ensure that al borrowers have a minimum level of
temporary benefits, but it would not necessarily preclude loan holders from voluntarily providing
additional relief at their discretion.
Perkins Loan Program
What is the difference between ED-held and institutionally held
Perkins Loans?
The Perkins Loan program is a federal student loan program, authorized under Title IV-E of the
HEA, under which institutions of higher education (IHEs) and the federal government capitalized
revolving loan funds to make low-interest loans to students with exceptional financial need.74
While authority to make new loans under the program was terminated on September 30, 2017,
borrowers of outstanding Perkins Loans remain responsible for making their loan payments.
Under the Perkins Loan program, IHEs capitalized their revolving Perkins Loan funds with a
combination of federal capital contributions (FCCs) and matching institutional capital
contributions (ICCs). The required proportion of ICCs to FCCs has varied over time. Most
recently, ICCs were required to equal one-third of the FCC.75 After making loans, IHEs
recapitalized their loan funds by depositing the principal and interest repaid by borrowers, as wel
as any other charges or earnings associated with the operation of the program. IHEs retain control
of the loans and perform loan servicing functions such as bil ing borrowers, collecting loan
payments, and initiating collection work on defaulted loans. Because IHEs have contributed ICCs
to enable them to make Perkins Loans, they have a financial interest in the amount of interest and
principal paid on the loans. In general, Perkins Loan terms and conditions are prescribed in
statute.76

72 Of the several federal income-driven repayment plans, FFEL program loans are only eligible for the Income-Based
Repayment plans. 20 U.S.C. § 1098e.
73 Danielle Douglas-Gabriel, “D.C. joins states in getting student loan companies to provide relief amid pandemic,”
Washington Post, May 5, 2020, https://www.washingtonpost.com/education/2020/05/04/dc-joins-states-getting-
student-loan-companies-provide-relief-amid-pandemic/.
74 For additional information on the Perkins Loan program, see CRS Report RL31618, Campus-Based Student
Financial Aid Program s Under the Higher Education Act.
75 20 U.S.C. § 1087cc(a)(2)(B).
76 20 U.S.C. § 1087dd.
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There are several circumstances under which a Perkins Loan may be transferred to ED. (Upon
transfer, Perkins Loan terms and conditions remain the same, but ownership and responsibility for
loan administration changes from IHEs to ED.) If an IHE chooses not to service and collect a
Perkins Loan, it assigns the loan to ED at any time.77 Also, an IHE is required to assign a Perkins
Loan to ED if the loan is in default and additional criteria are met78 or if the borrower becomes
eligible to have his or her loan discharged (e.g., due to the borrower becoming total y and
permanently disabled).79 Final y, an IHE must assign al of its outstanding Perkins Loans to ED
when its participation in the Perkins Loans program ends.80
For award year 2018-2019 (July 1, 2018-June 30, 2019), approximately 2.0 mil ion borrowers
owed approximately $5.7 bil ion in Perkins Loans. Of that, ED held nearly $1 bil ion,
representing debt for approximately 375,000 borrowers, and IHEs held about $4.7 bil ion,
representing debt for approximately 1.6 mil ion borrowers.81
Would extending CARES Act benefits to institutionally held
Perkins Loans affect an IHE's expected payment stream, and if so,
would they need to be reimbursed for any losses?82
Applying the CARES Act’s interest, payment, and involuntary collection suspension provisions
to institutional y held Perkins Loans could cause IHEs to collect less revenue than they would
have otherwise. Amending federal law to apply those provisions to institutional y held Perkins
Loans could therefore implicate the Takings Clause in a manner similar to that described above in
the sections on commercial y held FFEL program loans. Should Congress decide to provide a
measure of compensation to IHEs to account for the interruption of interest and principal
payments during the suspension period, it might authorize ED to make payments to IHEs and
provide an appropriation to fund the payments. Whether or not Congress provides compensation,
IHEs could potential y raise a takings claim in the U.S. Court of Federal Claims. If an IHE
prevailed on its claim, the Judgment Fund would likely be available to satisfy the resulting court
judgment directing payment to the IHE.

77 20 U.S.C. § 1087cc(a)(5).
78 Regulations specify that an IHE may assign a defaulted loan to ED despite due diligence in attempting to collect on
the loan. Regulations also specify that an IHE shall, at the request of the Secretary, assign a Perkins Loan to ED if,
among other criteria, the loan has been in default for at least seven years and payment on the loan has not been
recovered in the preceding 12 months. 34 C.F.R. §§ 674.8(d) and 674.50. ED requires IHEs to assign to it Perkins
Loans that have been in default for at least two years and where the IHE “knowingly failed to maintain an acce ptable
collection record.” U.S. Department of Education, Office of Federal Student Aid, 2019-2020 Federal Student Aid
Handbook, vol. 6, p. 201.
79 34 C.F.R. § 674.61(b)(3).
80 34 C.F.R. §§ 674.5(a)(2)(ii) and 674.17.
81 CRS communication with U.S. Department of Education, Office of Legislative and Congressional Affairs, May 22
2020.
82 CRS Legislative Attorneys Kevin M. Lewis and Sean M. Stiff prepared the legal analysis in this subsection of the
report.
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How would extending CARES Act benefits to institutionally held
Perkins Loans affect borrowers?
While CARES Act provisions do not specifical y apply to institutional y held Perkins Loans, ED
has issued guidance stating that IHEs may extend CARES Act-type loan benefits to Perkins Loan
borrowers. Among others benefits, ED has stated IHEs may provide to borrowers of
institutional y held Perkins Loans “the same zero percent interest and cessation of payments”
benefits and default collection flexibilities similar to those currently available to ED-held federal
student loan borrowers via the CARES Act.83 At least some IHEs have chosen to do so.84
Extending CARES Act-type benefits to borrowers with institutional y held Perkins Loans would
enable them to access new benefits that may not otherwise be available because their IHEs have
not opted to extend such benefits to them. However, there may be considerations regarding how
extending CARES Act provisions to institutional y held Perkins Loans may interact with loan
benefits otherwise made available to borrowers by their IHEs. For example, IHEs are authorized
to establish incentive repayment programs to encourage Perkins Loan repayment.85 A requirement
to provide institutional y held Perkins Loan borrowers with CARES Act-type benefits may
interact with those incentive repayment program provisions.

Author Information

Alexandra Hegji
Kyle D. Shohfi
Analyst in Social Policy
Analyst in Education Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

83 U.S. Department of Education, Office of Postsecondary Education, Electronic Announcement, “UPDAT ED
Guidance for interruptions of study related to Coronavirus (COVID-19),” April 3, 2020, https://ifap.ed.gov/electronic-
announcements/040320UPDATEDGuidanceInterruptStudyRelCOVID19 .
84 Danielle Douglas-Gabriel, “University of California offers Perkins Loan borrowers relief. Will other colleges
follow?”, The Washington Post, April 20, 2020.
85 34 C.F.R. § 674.33(f).
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