Senator Elizabeth Warren (D.Massachusetts), has led an effort to ask the Department of Education for student loan borrowers to be moved out of default status before payments resume in February.
Over 8 million people are currently in default on their student loans, according to Warren’s letter addressed to Education Secretary Miguel Cardonas, and over 93 percent of people who were in default before the pandemic still have been unable to pay their debt. Warren writes that the agency can relieve a tremendous burden on borrowers, and potentially help the entire economy.
“As the Department works to correct the past failures of the student loan program, it also has an opportunity to relieve a significant burden on borrowers by developing a policy to forgive debts for borrowers who have been in default for an extended period of time,” the letter reads. “Allowing payments and collections to resume without taking these actions to protect borrowers in default would undermine our economic recovery.”
The letter was signed by eight of Warren’s Democratic colleagues, including Senators Bernie Sanders (I-Vermont) and Ed Markey (D-Massachusetts).
Millions of borrowers who have fallen behind on student loan payments will still be owed. As the letter states, this could result in wage garnishment and withholding of child tax credit payments. This could have a particularly large impact on low-income borrowers. have been left behindAs the economy recovers after COVID impacts.
Senators also call on the Education Department for a program to automatically forgive loans owed by people who are in default for a prolonged period of time. The lawmakers cite the statute that limits other types of debt such as medical debt. This can vary from 3 to 10 year depending on the state.
Many borrowers who are in default of their loans stay so for the long-term. One 2018 study by the American Enterprise Institute found that about 30 percent of people in default remain in default for over five years, and attempts to collect this debt are often unsuccessful and “not a cost-effective use of taxpayer dollars,” the lawmakers say.
The lawmakers emphasize that default and loan forgiveness would have a significant impact on borrowers who may struggle to find housing, employment, or new educational opportunities. “The removal of borrowers’ records of default will improve borrowers’ credit scores, and in turn, their economic wellbeing.”
Warren and Democratic and progressive allies have been urging the Biden administration to cancel up to $50,000 in student debt throughout Joe Biden’s first year in office, saying that He has the authority to do this..
Biden stated that he would cancel $10,000 in student loan debts during his campaign, but he has so far failed to keep that promise. His administration actually has instead been hidingA memo for student loan forgiveness prepared by Education Department earlier this summer for months.
Warren also advocated in recent weeks forServicers for student loans should ensure that borrowers can be seamlessly transferred to new servicers after payments have resumed. Three servicers have announced in recent months that they’re exiting their contracts with the government, and, as Warren has pointed out, these servicers have a history of making mistakes, leaving little room for confidence as borrowers transition to new servicers.