Finance

Democrats press Education Dept over plans to help student loan borrowers in default

Sen. Elizabeth Warren (D-Mass.) leaves the weekly Senate Democratic policy luncheon on Tuesday, March 22, 2022.
Greg Nash
Sen. Elizabeth Warren (D-Mass.) leaves the weekly Senate Democratic policy luncheon on Tuesday, March 22, 2022.

Democrats are pressing the Department of Education for more information about plans to address the status of borrowers in default once federal student loan payments resume in the coming weeks.

The agency earlier this month said it would allow borrowers with paused loans to receive a “fresh start” when resuming payments “by eliminating the impact of delinquency and default and allowing them to re-enter repayment in good standing.”

The agency said the move would be carried out as part of its efforts to help borrowers transition more “smoothly” into repayment, after federal student loan payments and interest accrual were paused for more than two years under a pandemic freeze.

In a letter to the agency led by Sens. Elizabeth Warren (D-Mass.), Raphael Warnock (D-Ga.), Cory Booker (D-N.J.) and Bernie Sanders (I-Vt.), among others, the lawmakers said the move could “provide significant relief to millions of borrowers, particularly those who have most struggled with repaying their loans.”

But the lawmakers pressed for more information about the steps the agency plans to take in rolling out the plan as well as protecting borrowers “who have been in default for an extended period of time.”

The Federal Student Aid office characterizes a loan account as delinquent the first day after a borrower misses a payment. When an account remains delinquent, the borrower risks going into default, which can deal a significant blow to their credit rating and lead to a host of other consequences.

Millions of borrowers have gone into default on federal student loans, an experience the lawmakers noted in their letter is disproportionately shared by “borrowers are low income, people of color, first generation college students, veterans, student parents, students with disabilities, and people who did not complete college.”

“Removing these borrowers from default when student loan payments and collections resume means that millions will not be immediately subject to wage garnishment, tax refund withholding, and aggressive collections practices that undermine their economic security,” the lawmakers wrote.

“Placing borrowers in good standing also makes them eligible to enroll in Income-Driven Repayment (IDR) plans, where families earning less than 150% of the federal poverty line would have a $0 payment on their student loans,” they continued.

In their inquiry to the Education Department about its plans to provide relief to defaulted borrowers as well as access to repayment plans suited to needs, the lawmakers listed multiple questions for more information. 

Those questions include how many borrowers the department expects will benefit from the “fresh start” program and how many borrowers are expected to remain in good standing after six months. 

The lawmakers also pressed the department over whether it will “automatically remove borrowers from default status, without any application or registration requirements for borrowers” and how the agency plans on “handling accounts with judgments from debt collections lawsuits,” among other questions.

The lawmakers are requesting the information by May 5, roughly four months before the current moratorium on federal student loan payments is set to lapse at the end of August.

The Hill has reached out to the department for comment.

Tags Bernie Sanders Education Department Elizabeth Warren Elizabeth Warren student debt cancelation Student loans
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