Senators: Students in Loan Default Should Get New Start

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A group of Democratic senators says more than 7 million borrowers in default on their federal student loans should get a fresh start before pandemic relief measures expire, ensuring they don’t immediately face potential collection fees, wage garnishment, or other burdens.

The 7.5 million people who have defaulted on their federal student loans should be placed back in good standing, a group of 13 Democratic senators wrote in a letter sent last week to Department of Education Secretary Miguel Cardona. He has the authority to grant such standing because technically the reprieve on payments authorized by the CARES Act last year means anyone—even those in default—have made a year’s worth of on-time payments by now.

Cardona has not signaled whether he’ll grant the request, and spokespeople for the Department of Education and the White House didn’t respond to requests for comment.

Borrowers in default can have their wages, tax refunds, and any federal benefits garnished, and they don’t have access to things like additional student aid or income-driven repayment plans that could ultimately lead to their loan balance being forgiven.

Returning default loans to good standing would also set the stage for future reforms that could make the repayment system less confusing and more borrower-focused, said Sarah Sattelmeyer, a project director in the higher education initiative at New America, a nonpartisan, Washington-based think tank.

“The pandemic has been awful for many reasons,” Sattelmeyer said, “but it did unlock tools policymakers don’t normally have to make this kind of change that can materially change the lives of those who are struggling.”

When exactly a loan enters default depends on the type of loan. For direct loans, the most common type, it’s after payments are at least 270 days past due.

The CARES Act, already over a year old, included a freeze on payments and interest that’s now been renewed several times, with the latest extension going through Sept. 30. Under a 1965 law, a borrower can emerge from default status by making nine on-time payments in a 10-month period, so technically those in default have already satisfied this requirement, the lawmakers said.

The senators who signed the letter include Elizabeth Warren of Massachusetts, Raphael Warnock of Georgia, Bernie Sanders of Vermont, and Cory Booker of New Jersey.