2 years ago
The Biden administration on Wednesday moved to expunge the defaults of millions of federal student loan borrowers who fell behind on payments before the pandemic, as the White House formally unveiled a four-month extension of the pause on monthly loan payments and interest.
In a statement, President Joe Biden said he was extending the moratorium on most federal student loan payments through the end of August to give borrowers extra time “to get back on their feet after two of the hardest years this nation has ever faced.”
The extension until Aug. 31 is far shorter than what many Democrats had requested. A wide range of progressive and more centrist Democrats had urged the administration to continue the pandemic relief for borrowers until at least the end of the year, which would avoid having payments restart just before the November midterm elections.
“That additional time will assist borrowers in achieving greater financial security and support the Department of Education’s efforts to continue improving student loan programs,” Biden said, adding his administration would provide “additional flexibilities and support for all borrowers.”
Among those additional actions is a sweeping plan to pull millions of federal student loan borrowers out of default.
The administration 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,” the Education Department said in a separate statement on Wednesday.
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.”
Administration officials have been working through the details on that proposal for months. The deliberations have been complicated, in part, by how the Education Department plans to fund the program, according to several people familiar with the discussions.
An Education Department official confirmed to POLITICO that the agency would be automatically erasing the defaults of all borrowers covered by the pandemic-related pause. That includes borrowers who owe federal student loans that are directly held by the Education Department as well as borrowers who defaulted on federally-guaranteed student loans made by private lenders.
Roughly 8 million borrowers are in default on those types of federal loans, according to previously released data from the Education Department.
A group of Senate Democrats, led by Sens. Elizabeth Warren of Massachusetts and Raphael Warnock of Georgia, last year called on the administration to remove defaults from all federal student loans. More recently, Sen. Patty Murray (D-Wash.), the chair of the Senate education committee, also urged the Education Department to take that action.
Lawmakers argued the Education Department has the power to do so because the CARES Act allowed defaulted borrowers to count the pandemic-suspended payments toward the nine months of payments that are typically required for a borrower to bring their loans out of default through a process known as “rehabilitation.”
Borrowers usually must fill out paperwork with a debt collection firm to start that process, but Democrats are pushing the administration to nix that requirement—which it appears the Education Department plans to do.
The department plans to release more information about how the program will work in the “coming weeks,” the department official said.
Biden said that despite the strength of the economic recovery, “we are still recovering from the pandemic and the unprecedented economic disruption it caused.”
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