8 million student loan borrowers should be pulled from default: Warren
- Senator Warren has called for defaulting student loan borrowers to be automatically brought into good standing.
- 8 million borrowers are in arrears, causing a wage garnishment and a seizure of the child tax credit.
- Warren wants the Department of Education to act before student loan payments resume on February 1.
When the pause on student loan payments ends in 74 days, 8 million borrowers will enter the system already behind on their bills.
Massachusetts Senator Elizabeth Warren wants to make sure they don’t lose their wages and child tax credits as punishment.
On Thursday, Warren led eight of his fellow Democrats, including Vermont Senator Bernie Sanders, to send a letter Education Secretary Miguel Cardona asking him to automatically remove the default status of 8 million student loan borrowers. The letter noted that a disproportionate number of defaulting borrowers are low-income people and communities of color, and sending them back into repayment will only undermine the country’s economic recovery.
“If these borrowers remain in default when student loan payments and collections resume, they will be subject to payday garnishment, withholding tax refunds and aggressive collection practices,” the Democrats wrote. . “Millions of families could have their earned income tax credit and child tax credit refund payments withheld, undermining the effectiveness of President Joseph R. Biden’s iconic economic policies.”
Along with an automatic return to the rule, lawmakers have also asked the Department of Education to develop a loan cancellation policy in the event of a borrower’s long-term default when it is “unlikely” or “Financially unfeasible” for the department to continue to collect Payments.
This follows Warren and Rep. Ayanna Pressley leading a group of Democrats who wrote a letter to Cardona in July, fearing that borrowers would ‘plunge’ borrowers back into repayment without a plan to protect their credit scores and their debt. financial stability.
Insider reported on Tuesday that, according to Department of Education data, 93% of borrowers who entered the pandemic payment break in default still are.
During the payment break, defaulting borrowers also had the opportunity to participate in the “rehabilitation” program, which allowed borrowers to make nine monthly payments during the break in order to get back into good standing. And given the payment break, borrowers could count 0 payments on their progress.
But to participate in the program, borrowers had to complete a significant amount of paperwork and contact their student loan company, which is no small feat and leaves many borrowers without the information they need to pay off their debt.
The department is reportedly considering a “safety net” for borrowers once payments are resumed, one of which could include automatically wiping past due payments for 8 million borrowers and giving them a “fresh start.” Details of those plans have yet to be finalized, however, and lawmakers and borrowers want answers not only on plans to restart payments, but on blanket student debt cancellation – a topic on which l The Biden administration continues to remain silent.
“Attempting to collect this debt is probably not a profitable use of taxpayer money, and forgiving this debt would result in life-changing relief for affected borrowers, which could benefit our global economy,” the lawmakers wrote. . “The cancellation of $ 50,000 in student debt would solve this problem by completely relieving the burden of student debt for the vast majority of borrowers.