Today, the U.S. Department of Education announced it will halt collections for the approximately 1 ... [+]
Today the Department of Education announced it will halt collections on student borrowers in default with loans under the old bank-based federal student lending system.
The CARES Act passed in March 2020 suspended payments and interest on federally-held student loans through September 30, 2020. That suspension has been extended multiple times. Most recently, President Biden extended the pause through at least September 30, 2021.
However, that only applied to those borrowers with federally-held loans. Millions of student borrowers with loans under the Federal Family Education Loan (FFEL) program were left out of this protection and benefit. While some of those loans were purchased by the Department of Education, most are held by either commercial lenders or guaranty agencies.
The actions by the Department today mean that more than 1 million student borrowers with commercially-held federal loans that are currently in default will no longer be in collections. Additionally, their interest rate will be set to zero percent.
The Department also made this retroactive to March 13, 2020. Borrowers who have defaulted since then will be refunded for any tax returns and wages that were seized. The Department will go a step further and refund interest that accrued on defaulted loans in that time frame.
House Education and Labor Committee Chairman Representative Bobby Scott (D-VA) applauded the decision. In a statement he said, “Today, the Biden administration took another step to expand relief for struggling student loan borrowers amid the Covid-19 pandemic. While Congress previously paused interest accrual and collections for distressed borrowers with federally held loans, these provisions did not cover borrowers with commercially-held loans under the Family Federal Education Loan Program.”
Scott also said that House Democrats had introduced multiple pieces of legislation in the past to address this, but “congressional Republicans and the previous administration blocked action that would have provided a financial lifeline to borrowers who had fallen behind on privately held student loans.”
Still, this only applies to the borrowers who have defaulted. Millions of borrowers with commercially-held loans will not receive the payment or interest pause.
Earlier this year, Congressman Joe Courtney (D-CT) introduced a bill that would extend the CARES Act benefits to student borrowers with commercially-held federal student loans. Courtney’s legislation would also make the benefits retroactive to March 12, 2020. Courtney’s bill would cover the approximately 8 million student borrowers, not just the ones in default.
However, his legislation has yet to pass. Without legislation, it could be a challenge for the Department of Education to use executive action to make all FFEL borrowers eligible for the CARES Act relief.
