Whether and how to address the $1.5 trillion in federal student loans was reportedly a sticking point in negotiations over the $2 trillion fiscal relief deal (PDF) passed by the Senate last night. The legislation, which still needs to clear the House, would automatically pause student loan payments for six months, interest free. Though this plan will help struggling borrowers avoid further negative consequences, it won’t increase cash flow for the most vulnerable groups.

What the bill does

The legislation suspends student loan payments through the end of September, with no interest accruing, so borrowers will owe the same amount then that they do now. But the pause on payments will not free up cash for borrowers not currently making payments.

The deal also temporarily stops the involuntary collection of payments from borrowers who are in default, such as through wage garnishment and seizure of tax refunds, codifying a policy change announced yesterday by the Trump administration. But it doesn’t include the more generous forgiveness measures sought by Congressional Democrats, such as the government making the payments for borrowers (rather than simply postponing payments) and guaranteeing at least $10,000 in forgiveness for each borrower.

The plan’s likely effects on borrowers

By definition, suspending payments will immediately impact only borrowers currently making payments. Borrowers who already are not paying their loans can benefit from the pause on interest, the end of involuntary collection, and the fact that they will not be penalized for failing to pay their loans. But the pause on payments will not provide them with additional cash to spend.

Among households with student loan debt who weren’t still in college in 2016, the most recent year for which data are available, 67 percent were making payments on their loans and thus would have more available cash if their payments were paused. Of the 33 percent who were not making payments, most cited a loan forbearance, postgraduation grace period, or loan forgiveness program. But a substantial fraction of those who were supposed to be making payments said they were not because they could not afford to. (Though households’ situations have surely changed in the last four years—and even the last four weeks—the 2016 data are helpful in providing a sense of which groups are most likely to benefit and which are largely left out.)

Payment rates are closely related to household income. Only 30 percent of the lowest-income households with debt were making payments on their student loans in 2016, compared with more than 90 percent of the highest-income households. And households where at least one adult completed a four-year degree were more likely to be making payments than those where no adults had completed a postsecondary degree.

This means postponing payments is unlikely to provide much immediate fiscal relief to most low-income households and those with lower levels of education—the groups we might expect to be most affected by a financial downturn. In some cases, these households will see cash freed up by the end of involuntary collection, such as from earned income tax credits that would otherwise be seized to pay for student loans, or may benefit from not having their missed payments count against their credit record.

Higher-income families are much more likely to enjoy an immediate increase in available cash, which could relieve financial pressure (such as from a job loss) and potentially stimulate the economy through additional consumer spending. Many of these households will still have to make these payments eventually, but could do so at a time when finances are not as tight. Borrowers enrolled in income-driven repayment programs would be an exception, as the $0 payments count toward the number of months they must repay before their loans are forgiven.

Would canceling loans have a different impact?

Congressional Democrats have proposed that the federal government make payments on behalf of borrowers, rather than postponing them. That proposal, which didn’t make it into the final deal but may be considered again in future relief packages, also called for the government to reduce every borrower’s balance by at least $10,000 at the end of the national health emergency (including the payments made for them during the emergency).

This proposal would have a similar immediate effect on households’ cash flows as postponing payments, because in the short term, a postponed payment is the same thing as a forgiven payment. But after the national emergency ends, borrowers would have lower balances than they do now.

Forgiving at least $10,000 in debt for each borrower (or all of their debt, if it is less than $10,000) would benefit middle- and upper-income households somewhat more than lower-income households, because higher-income households tend to hold more student debt.

The benefits to lower-income households would come almost entirely in the $10,000 reduction in their loan principal, which will reduce their future loan burden but have a much smaller effect on their monthly cash flows. This is because they are less likely to be making payments on their loans, and payments made tend to be smaller; the average payment made by the lowest-income households is $140, compared with $460 for the highest-income group. For higher-income households, these larger payments mean that a greater (but still modest) share of the benefit comes from the government covering monthly payments.

Providing all student loan borrowers—or all Americans—with $10,000 in cash is more likely to accomplish the goals of relieving financial hardship and stimulating the economy as quickly as possible than forgiving the same amount in loans after the national health emergency ends. Besides being provided months later, the effect of loan forgiveness is spread out over many years in the form of lower payments or less time in repayment.

What should Congress consider next?

In future relief packages, Congress might again consider approaches aimed at putting borrowers on stronger footing once the health emergency ends and the country likely finds itself in an economic downturn. But there are more equitable ways to do that than lump sum forgiveness. More than a million borrowers default on their loans every year, a statistic that will likely worsen as the economy weakens. Solutions could target aid at those already in default or at great risk of ending up there.

If Congress’s goal is to increase household’s available cash and stimulate the economy, direct payments to families will more effectively accomplish that than loan forgiveness. But if the goal is to relieve hardship among families struggling with student debt, one option is to enact a one-time automatic rehabilitation of all defaulted loans, which would give a fresh start to defaulted borrowers at the end of the health emergency. Congress could eliminate the fees and capitalized interest added to defaulted loans, effectively giving defaulted borrowers a second chance to pay what they would owe if they hadn’t defaulted.

To prevent borrowers from redefaulting, Congress could fund an aggressive outreach effort aimed at counseling borrowers into income-driven repayment or even automatically enroll distressed borrowers into such a plan. Combined with the pause in payments and interest accumulation agreed to yesterday, this approach could leave many struggling borrowers in a better position to repay their debt than before the crisis—even if the economy is weaker.