7.5 million student-loan borrowers in default will reportedly have 1 year after the payment pause expires to enroll in a program that returns them to good standing
- The Washington Post obtained documents on the Education Department’s plan to help defaulted student-loan borrowers.
- The temporary program would give borrowers one year to return to good standing once the payment pause expires.
- Enrollment would not be automatic, per the Post, meaning borrowers would have to reach out for help.
New details of the Education Department’s plan to restore millions of defaulted student-loan borrowers to good standing have emerged, per The Washington Post.
When President Joe Biden announced in April that he would be extending the federal pause on student-loan payments for his fourth time, through August 31, he also announced a “fresh start” plan that would return the 7.5 million borrowers behind on their payments, or in default, into good standing before entering repayment again. Details of how the department actually planned to do that have yet to be officially announced — but the Post obtained documents highlighting what the plan might look like once implemented.
Per the documents, borrowers in default will have one year once the payment pause expires to participate in the temporary program, and enrollment will not be automatic — the Post reported that borrowers would have to contact the Education Department’s Default Resolution Group or the companies that service their loans to make use of the program’s benefits.
During this one-year period, borrowers would not be subjected to the consequences of default, like wage garnishment. They would also regain access to federal financial aid, and the department would delete credit reporting on loans that have been behind on payments for more than seven years, making it easier for borrowers to get help from lenders.
It’s unclear when this program would begin, given borrowers still do not know if the student-loan payment pause will be extended. Education Secretary Miguel Cardona said on Tuesday that borrowers will “soon” be informed of the department’s plans. In the same timeframe, Biden is expected to announce his broad student-loan forgiveness decision, reportedly considering $10,000 in relief for borrowers making under $150,000 a year.
When it comes to defaults, advocates and some of Biden’s officials have sounded the alarm on how bad falling behind on a debt payment can be. During a virtual discussion earlier this month, Under Secretary of Education James Kvaal said that “defaulting on your student loan is about the farthest thing from a get-rich-quick scheme. It’s more like a stay-in-debt-forever scheme.”
“By and large, borrowers who default on their loans are people who have been failed by the policies and lagging investments in college affordability,” Kvaal added. “They provide the most compelling evidence that the student loan system needs fundamental change.”
A Government Accountability Office report from January identified 50% of borrowers as “at-risk” of falling behind on payments once the pause expires, and the department’s plan likely aims to combat that risk. But lawmakers, for months now, have been requesting details on how exactly those borrowers will receive aid.
In April, Massachusetts Sen. Elizabeth Warren led seven of her Democratic colleagues in requesting further details from the department on its plan, noting that restoring borrowers to good standing means “millions will not be immediately subject to wage garnishment, tax refund withholding, and aggressive collections practices that threaten to undermine their economic security.”
The department has not yet publicly commented on details of its plan.