Cardona Suspends Collection of One Million Defaulted Federal Student Loans

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Cardona Suspends Collection of One Million Defaulted Federal Student Loans


Key context: The CARES Act and the executive actions of the Trump and Biden administrations previously covered approximately 40 million Americans who owe student loans held directly by the Department of Education. Monthly payments and interest on these loans have been suspended since March 2020, and relief is currently expected to expire at the end of September.

But emergency relief programs have excluded an estimated 8 million borrowers who owed federally guaranteed student loans held by the private sector.

Cardona’s action on Tuesday only applies to borrowers who have defaulted on their federally guaranteed loans from private lenders under the federal family education loan program. It does not affect about 5 million borrowers who do not default on their loans under this program.

“We are still researching our options,” a senior ministry official told reporters on Monday, saying it was “more complicated” for the agency to extend its relief to federally guaranteed loans which are still held by private lenders.

The official said the Department of Education provides relief to defaulting borrowers under the HEROES Act, a 2003 federal law that gives the department the power to change the terms of federal student loans in the event of an emergency.

How it will work: The Education Department has said it will immediately suspend collection of 1.14 million federally guaranteed student loans that are in default.

The relief will apply retroactively, the ministry said, and the agency will reimburse tax returns and wages it has garnished from borrowers in default since March 13, 2020, when President Donald Trump declared an emergency. national due to Covid-19.

The ministry said it would also repay interest accrued on loans past due since last March.

Reaction: Consumer advocates have welcomed the expansion of relief for some borrowers, but said the education ministry should go further to extend assistance to all borrowers.

“Borrowers with FFEL commercial loans need Washington to stop drawing arbitrary lines that leave them without any protection or assistance,” said Seth Frotman, executive director of the Student Borrower Protection Center. “It is clear that the Department has the legal authority to protect all federal student loan borrowers during the pandemic and to provide real relief – it is high time for them to use it.

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

“The millions of FFEL borrowers who have not yet defaulted but who may be struggling to repay their student loans often at the expense of other vital necessities are in need of relief,” she said. “The Department can help and must do so immediately.”

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