The U.S Department of Education announced a new round of federal student loan relief which includes not only another extension of the loan payment pause, but a new form of relief that will have a major impact on some borrowers.
The Biden Administration is offering to help millions of loan borrowers who were behind on their debt payments prior to the COVID-19 pandemic by marking defaulted accounts as current.
For the past two years, federal student loan payments and interest rates have been suspended along with collection efforts against defaulted payments of loan borrowers. After multiple extensions, the relief was set to end on May 1 but was extended to Aug. 31.
“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition back to repayment,” said U.S. Secretary of Education Miguel Cardona in a statement.
“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.
According to a report from the Education Data Initiative, one out of every 10 Americans has defaulted on a student loan and 7.8% of all student loan debt is defaulted. The department also said the extension will provide borrowers with additional time to plan for resumption of payments, reducing the risk of delinquency and defaults after restart. This will give a “fresh start” to borrowers by allowing them to re-enter in good standing.
The decision is important considering how powerful the government collection tools are. They can allow federal lenders and debt collectors to garnish wages, block tax refunds and offset Social Security benefits.
Additional details or a timeline has not yet been released. The decision could help up to 9 million borrowers.
Student loan default rate by Education Data Initiative
An average of 15% of student loans are in default at any given time.
11% of new graduates default in the first 12 months of repayment.
$124.4 billion in student debt is in defaulted student loans.
Over a million student loans enter default each year.
Student loan default affects 9 million borrowers and their families.