Cardona suspends collection of 1 million federal student loans in default

Key context: The CARES law and executive actions of the Trump and Biden administrations had previously captured around 40 million Americans who owe student loans held directly by the education department. Monthly payments and interest on these loans have been on hold since March 2020, and the relief currently expires in late September.

However, the emergency programs have excluded around 8 million borrowers who owed government-sponsored student loans held by the private sector.

Cardona’s promotion on Tuesday only applies to borrowers who have defaulted on their federally guaranteed loans made by private lenders under the Federal Family Education Loan program. This does not affect around 5 million borrowers who are not in default on their loans under this program.

“We’re still looking at what options we have,” a senior department official told reporters on Monday. It is “more complicated” for the agency to extend the relief to government-guaranteed loans that are still held by private lenders.

The official said the Department of Education is granting defaulting borrowers the relief under the HEROES Act, a federal law of 2003 that gives the department the power to change federal student loan terms during an emergency.

How it will work: The Department of Education announced it will immediately suspend the recovery of 1.14 million federally sponsored student loans that are in default.

The relief will be applied retrospectively, the department said, and the agency will refund the tax returns and wages it confiscated from borrowers who have been in default since March 13, 2020, when President Donald Trump created a national emergency over Covid-19 explained.

The department said it will also refund interest accrued on the defaulted loans from last March.

Reaction: Consumer advocates praised the expansion of the facility for some borrowers, but said the education department should go further to broaden the facility for all borrowers.

“Borrowers with commercial FFEL loans in Washington no longer have to draw arbitrary lines leaving them without protection or assistance,” said Seth Frotman, executive director of the Student Borrower Protection Center. “It is clear that the department has legal authority to protect and provide real relief to all federal loan borrowers during the pandemic – it has been a long time since they used it.”

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

“The millions of FFEL borrowers who have not yet defaulted but may have difficulty making their student loan payments, often at the expense of other vital necessities, need relief,” she said. “The department can provide that relief and should do so immediately.”

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