Student loans

Biden’s latest student loan relief includes this major new benefit

The Biden administration announced a new round of federal student loan relief on Wednesday, including another extension of the current student loan payment pause. But the announcement also included a new form of relief that will have a big impact for some borrowers.

Biden extends student loan payment suspension

Most payments and interest on federal student loans have been suspended for more than two years, and collection efforts against defaulting federal borrowers have also been halted. After several extensions, the relief was to end on May 1.

But earlier on Wednesday, the administration announced it would extend the pause on student loan repayments and interest for an additional four months until August 31, 2022. “We cannot afford to repay,” Biden said in a statement. He argued that another extension would provide relief to borrowers while allowing the administration to work to improve existing federal student loan programs.

Biden’s student loan relief includes significant benefit for defaulting borrowers

Buried in today’s announcement was an important new benefit: Borrowers in default on their federal student loans will be automatically restored to good standing and any defaults will be corrected.

“This extension…will include a ‘fresh start’ – eliminating the impact of delinquency and default for all borrowers,” Education Secretary Miguel Cardona said in a statement. Tweeter. “It remains a top priority for the Biden-Harris administration to support students, families, and borrowers — especially those disproportionately impacted by the pandemic.”

Defaulting on federal student loans can be devastating to borrowers. The government has powerful collection tools that allow federal lenders and collectors to garnish wages, intercept federal tax refunds, and offset federal benefits such as Social Security without having to go through the system. judicial. Failure to pay can also cause student borrowers to incur substantial financial penalties as well as credit damage. And defaulting borrowers are also locked in for new federal aid.

The CARES Act — the legislation that first enacted the suspension of student loans — had suspended all collection efforts against borrowers in default on their federal loans. But while the relief allowed months of suspended payments to count toward loan “rehabilitation” — a federal loan program that allows borrowers to remedy federal defaults and restore their loans to good standing after at least nine months payments – the Department of Education does not automatically rehabilitate borrowers. Instead, the Department still required borrowers to positively enroll in the rehabilitation program and enroll by submitting specific documents. Since collection efforts had been suspended under the CARES Act, this information was rarely shared with borrowers, leaving millions in default.

The actions of the Biden administration will allow the Department of Education to automatically remove borrowers from default and restore their accounts to good standing. Officials have yet to release concrete details or a timeline for its new “fresh start” program, but it could benefit up to nine million borrowers.

Advocates praise Biden’s action but call for more robust relief, including student loan forgiveness

“For too long, defaulting borrowers have slipped through the cracks and fallen victim to the Department of Education’s punitive clawback system, which forces them to forfeit their wages, social security benefits and school credits. earned income tax in retaliation for non-payment. on their federal loans,” Persis Yu, director of policy at the Student Borrower Protection Center (SBPC), said in a statement. “We applaud the Biden administration’s decision to pull millions of borrowers out of default and give them a fresh start.”

The relief announced today “is important for borrowers struggling to cope with the damage caused by the pandemic, economic shocks and inflation,” Student Debt Crisis Center (SDCC) President Natalia Abrams said in a statement. a statement.

But advocates have called for Biden to go much further in the coming months, including embracing a broad student loan forgiveness.

“There is still a lot of work to be done to achieve further relief and cancel student debt – we will continue to echo the voices of our supporters until we achieve this,” said Cody Hounanian, CEO of CCSD.

“The Ministry must not waste this opportunity to fix the broken student loan system. Under this new rapid timeline, the Department must work quickly to end its punitive collection practices, secure meaningful avenues for borrowers to deleverage, and provide widespread debt cancellation,” Yu said.

Further Reading on Student Loans

4 options for Biden to legally enact student loan forgiveness without Congress

Biden formally extends student loan payment suspension, promises ‘additional flexibilities’ for borrowers

Student loan relief: Advocates step up pressure on Biden to extend payment pause and cancel student debt

Who qualifies for the $6 billion student loan forgiveness announced by the Biden administration