Student Loan Borrowers In Default Get A ‘Fresh Start’ On Payments

In addition to announcing an extension of the pause on federal student loan payments, the Department of Education also announced it would allow all borrowers with paused loans in default to receive a “fresh start” by returning them to good standing when payments resume.

According to a statement the Department released, the Education Department will allow “all borrowers with paused loans to receive a “fresh start” on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing,” according to a statement the Department released.

“During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs,” said Education Secretary Miguel Cardona.

Politico first reported in October that the Biden administration was looking at plans to automatically pull millions of borrowers out of default on their federal student loans, which officials had internally labeled “Operation Fresh Start.”

“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition back to repayment,” said Cardona. “This additional extension will allow borrowers to gain more financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic. It remains a top priority for the Biden-Harris Administration to support students, families, and borrowers – especially those disproportionately impacted by the pandemic.”

“For too long, defaulted borrowers have slipped through the cracks and been made to suffer at the hands of the Department of Education’s punitive collection system, which forces them to forgo their wages, social security benefits, and Earned Income Tax Credits in retaliation for defaulting on their federal loans,” Student Borrower Protection Center Policy Director Persis Yu said in a statement. “We applaud the Biden Administration’s decision to pull millions of borrowers out of default and to give them a fresh start.”

While many welcomed the repayment extension, Democratic lawmakers want President Biden to go further.

A group of Democrats, including Sens. Elizabeth Warren, Chuck Schumer, and Rep. Ayanna Pressley urged Biden to take his action a step further and cancel student debt.

“While the extension is welcome, a looming restart of student loan payments in September underscores the importance of swift executive action on meaningful student debt cancellation,” they said. “We continue to implore the President to use his clear legal authority to cancel student debt, which will help narrow the racial wealth gap, boost our economic recovery, and demonstrate that this government is fighting for the people.”

 

 

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