Cardona Suspends Collection of One Million Defaulted Federal Student Loans

The Biden administration on Tuesday halted collection of more than one million federally guaranteed student loans, giving relief to a subset of borrowers who have been excluded from the government’s unprecedented freeze on loan payments and interest during the past year.

The Education Department has said it will suspend collection for all borrowers in default of student loans guaranteed by the federal government but held by a private entity. It will also set the interest rate at 0 percent on these loans.

“Our goal is to enable those struggling defaulters to obtain the same protections previously made available to tens of millions of other borrowers to help overcome the uncertainty of the pandemic,” the secretary said. to Education, Miguel Cardona, in a statement.

Key context: The CARES Act and the executive actions of the Trump and Biden administrations previously covered about 40 million Americans who owe student loans held directly by the Department of Education. Monthly payments and interest on these loans have been suspended since March 2020 and relief is currently expected to expire at the end of September.

But emergency relief programs excluded about 8 million borrowers who owed federally guaranteed student loans held by the private sector.

Cardona’s action on Tuesday applies only to borrowers who have defaulted on their federally guaranteed loans from private lenders under the federal family education loan program. It does not affect about 5 million borrowers who are not in default under this program.

“We are still considering what our options are,” a senior ministry official said on Monday, saying it was “more complicated” for the agency to extend relief to federally guaranteed loans that are still held by private lenders.

The official said the Department of Education provides assistance to defaulting borrowers under the HEROES Act, a 2003 federal law that gives the department the power to change the terms of federal student loans in the event of an emergency.

How it will work: The Education Department said it would immediately suspend collection of 1.14 million federally guaranteed student loans in default.

The relief will apply retroactively, the department said, and the agency will reimburse tax returns and wages it has garnished from borrowers in default since March 13, 2020, when President Donald Trump declared a national emergency. because of Covid-19.

The department said it would also repay accrued interest on delinquent loans dating back to last March.

Reaction: Consumer advocates have welcomed the expansion of relief for some borrowers, but said the education ministry should go further to extend relief to all borrowers.

“Borrowers with FFEL commercial loans need Washington to stop drawing arbitrary lines that leave them without any protection or assistance,” said Seth Frotman, executive director of the Student Borrower Protection Center. “It is clear that the department has the legal authority to protect all federal student loan borrowers during the pandemic and to provide real relief – it is high time they used it.”

Persis Yu, director of the National Consumer Law Center’s Student Loan Assistance Project, said the group was “happy” with the relief, but said it was “not enough.”

“The millions of FFEL borrowers who have not yet defaulted but who may struggle to repay their student loans often at the expense of other vital necessities need relief,” she said. “The department can provide this relief and should do so immediately. “

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