Several distinguished Democratic lawmakers are asking the Education Department (ED) about student debt assortment practices within the face of a possible wave of student loan defaults when the pandemic cost pause expires, Yahoo Finance has realized.
“With student loan and interest payments scheduled to resume on October 1, 2021, and a wave of loan delinquencies and defaults likely to follow, we are concerned about the Department resuming these payment collections and are seeking information about how ED plans to avoid long-term financial harm to borrowers,” Sen. Elizabeth Warren (D-MA), Sen. Cory Booker (D-NJ), and Rep. Ayanna Pressley (D-MA) wrote in a letter sent to Secretary of Education Miguel Cardona on Wednesday morning, which was obtained by Yahoo Finance.
ED did not immediately respond to a request for comment.
Even before the pandemic, the letter stressed, “collections on defaulted student loans have been catastrophic for debtors in default, who noticed their wages, tax refunds, and even Social Security checks confiscated, along with being compelled to pay exorbitant charges.”
The letter comes as some ED officials urge the White House to extend the payment pause into 2022, according to a recent report from Politico. Warren and U.S. Senator Ed Markey (D-MA) wrote to the White House directly on July 13 to “urge you to increase the present pause on funds and curiosity till at the very least March 31, 2022.”
Federal actions amid the pandemic will lead to roughly $100 billion in total student loan forgiveness between March 2020 and September 2021, according to Education Department (ED) data and analysis from experts, providing a financial lifeline to roughly 45 million student loan borrowers.
Student loan balances increased by $29 billion to $1.58 trillion in the first quarter of 2021, according to the New York Fed. At the same time, only 6.2% of student loans were in serious delinquency or default in the first quarter of 2021 due to the payment pause and debt collection moratorium.
Preventing student loan defaults a key issue for Democrats
Defaulting on a student loan carries heavy and serious consequences.
Loans go into collection, which could lead to court fees, wage garnishment, tax refunds seized, Social Security benefits garnished, credit history damaged, interest benefits denied, and more.
About 7.7 million borrowers’ loans were in default as of March 2020, and President Biden’s nominee to lead the Consumer Finance Protection Bureau (CFPB) previously warned of a potential “avalanche of defaults” when the payment pause expires.
“As we near the currently scheduled end of the suspension of payments and collections,” the letter from lawmakers acknowledged, “we are concerned about plunging borrowers back into an untenable financial situation, causing long-term damage to their credit and financial stability and a sudden unnecessary drag on our recovering economy.”
In April, Warren and a gaggle of senators — together with Raphael Warnock (D-GA) — have additionally despatched a letter urging the ED to revive defaulted student loans to on-time standing amid the continuing cost pause.
“Removing borrowers from default status and eliminating their record of default will provide them significant financial benefits,” the April letter acknowledged. “It will ensure these borrowers do not immediately face the garnishment of wages, tax refunds, and Social Security, and additional collection fees, once the nationwide forbearance expires.”
Under the Higher Education Act of 1965, a loan may be rehabilitated from default standing by making 9 on-time funds over 10 consecutive months. After this course of, any document of default is expunged from their credit historical past and any garnishment of wages stops.
Warren, Schumer, and Pressley have additionally repeatedly known as on Biden to cancel $50,000 in student loan debt instantly by way of government order.
$50,000 in loan forgiveness would erase all the debt burden for 36 million (84%) of the roughly 43 million debtors holding federally-backed debt whereas $10,000 in forgiveness would wipe out the debt for 15 million of these debtors (35%).
If the cost pause is lifted with out cancellation in October, Warren beforehand stated in May, “we are facing a student loan time bomb that when it explodes could throw millions of families over a financial cliff.”
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