Federal Relief Expands to Some Defaulted (Private) Student Loans

A 2020 graduate holds her hands to her face with emotion as people stand around her, clapping
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More than 1 million private student loan borrowers can breathe a sigh of relief: The pause on interest and collections on federal student loans now applies to certain defaulted loans made by private lenders, the Department of Education announced Tuesday.

Specifically, the 1.14 million people who defaulted on a privately held Federal Family Education Loan (FFEL) Program loan are now eligible to avoid interest and collection activity, the Department said in a news release. Previously, only federal student loans were eligible for the relief, offered to alleviate the financial burdens of the COVID-19 pandemic. 

Under the FFEL Program, which is no longer making new loans, private lenders made federal student loans that were insured by guaranty agencies and reinsured by the federal government. After these loans enter default, they are transferred from the lender to the guaranty agency.

Until now, more than 800,000 borrowers were at risk of having their federal tax refunds seized to repay their defaulted loans. The relief will be retroactive to March 13, 2020, and will run through the end of September 2021, the Department said.

“At a time when many student loan borrowers have faced economic uncertainty, we’re ensuring that relief already provided to borrowers of loans held by the Department is available to more borrowers who need the same help so they can focus on meeting their basic needs,” Education Secretary Miguel Cardona said in the release. “Our goal is to enable these borrowers who are struggling in default to get the same protections previously made available to tens of millions of other borrowers to help weather the uncertainty of the pandemic.”

Any tax refunds seized or wages garnished over the past year will be returned, and borrowers who made voluntary payments on any of these loans during the past year can request a refund. Also, any loan that went into default since March 13, 2020, will be returned to good standing and the credit bureaus will be asked to remove the record of default.