The Biden administration on Wednesday announced a new round of federal student loan relief, including another extension of the ongoing student loan payment pause. But the announcement also included a new form of relief that will have a big impact for some borrowers.
Biden Extends Student Loan Payment Pause
Most federal student loan payments and interest have been suspended for over two years, and collections efforts against defaulted federal student loan borrowers have been stopped, as well. After several extensions, the relief was set to end on May 1.
But earlier on Wednesday, the administration announced that it will extend the pause on student loan payments and interest for another four months to August 31, 2022. “Restarting repayment will financially destabilize many borrowers and their families, and will cause hardship for many who could not afford repayment,” said Biden in a statement. He argued that another extension would provide relief for borrowers while allowing the administration to work to improve existing federal student loan programs.
Biden’s Student Loan Relief Includes Big Benefit For Defaulted Borrowers
Buried in today’s announcement was a significant new benefit: borrowers in default on their federal student loans will be automatically returned to good standing, and any delinquency will be cured.
“This extension will… include a “fresh start” — eliminating the impact of delinquency & default for all borrowers,” said Secretary of Education Miguel Cardona in a tweet. “It remains a top priority for the Biden-Harris Administration to support students, families, and borrowers – especially those disproportionately impacted by the pandemic.”
Federal student loan default can be devastating for borrowers. The government has powerful collections tools that allow federal lenders and debt collectors to garnish wages, intercept federal tax refunds, and offset federal benefits like Social Security without having to go through the court system. Default can also cause student loan borrowers to incur substantial financial penalties as well as credit damage. And borrowers in default are blocked from new federal aid, as well.
The CARES Act — the legislation that first enacted the student loan pause — had suspended all collections efforts against borrowers in default on their federal loans. But while the relief allowed the months of suspended payments to count towards loan “rehabilitation” — a federal loan program that allows borrowers to cure federal defaults and restore their loans to good standing after at least nine months of payments — the Education Department did not automatically rehabilitate borrowers. Instead, the Department still required borrowers to affirmatively apply for the rehabilitation program and enroll by submitting specific paperwork. Since collections efforts had been suspended under the CARES Act, this information was rarely communicated to borrowers, leaving millions stuck in default.
The Biden administration’s actions will allow the Education Department to automatically remove borrowers from default and restore their accounts to good standing. Officials have not yet released concrete details or a timeline for its new “fresh start” program, but it could benefit up to nine million borrowers.
Advocates Praise Biden’s Action But Call For More Robust Relief, Including Student Loan Forgiveness
“For too long, defaulted borrowers have slipped through the cracks and been made to suffer at the hands of the Department of Education’s punitive collection system, which forces them to forgo their wages, social security benefits, and Earned Income Tax Credits in retaliation for defaulting on their federal loans,” said Student Borrower Protection Center (SBPC) Policy Director Persis Yu in a statement. “We applaud the Biden Administration’s decision to pull millions of borrowers out of default and to give them a fresh start.”
The relief announced today “is important to borrowers struggling to shoulder the harm caused by the pandemic, economic shocks, and inflation,” said Student Debt Crisis Center’s (SDCC) President Natalia Abrams in a statement.
But advocates called on Biden to go much further in the coming months, including enacting broad student loan forgiveness.
“There is much more work to be done to secure additional relief and cancel student debt — we will continue to echo the voices of our supporters until we get it done,” said Cody Hounanian, SDCC Executive Director.
“The Department must not squander this opportunity to fix the broken student loan system. Under this new swift deadline, the Department must work fast to end its punitive collection practices, ensure meaningful pathways for borrowers to get out of debt, and provide widespread debt cancellation,” said Yu.
Further Student Loan Reading
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Student Loan Relief: Advocates Ramp Up Pressure On Biden To Extend Payment Pause, Cancel Student Debt
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