Van Hollen, Warren Urge Department of Education to Remove Millions of Student Loan Borrowers from Default
Eight Million Borrowers in Default Could Be Subject to Wage Garnishment, Tax Refund Withholding, and Aggressive Collections Practices
Senator Chris Van Hollen (D-Md.) joined Senator Elizabeth Warren (D-Mass.) in sending a letter to the Department of Education urging Secretary Cardona to use his authority to automatically remove all student loan borrowers in default on federally-held loans from their default status. The Senators also called for the Department of Education to develop a policy to discharge debt for borrowers who have been in default for an extended period of time, noting that continuing to attempt to collect on this debt would be an inefficient use of taxpayer dollars, while forgiveness would have a life-changing impact on borrowers and their families.
“Allowing payments and collections to resume without taking these actions to protect borrowers in default would undermine our economic recovery, and I urge you to take immediate steps to prevent these borrowers from being further harmed,” wrote the senators.
The letter was also signed by Senators Cory A. Booker (D-N.J.), Sherrod Brown (D-Ohio), Bernard Sanders (I-Vt.), Richard Blumenthal (D-Conn.), Tina Smith (D-Minn.), Tammy Baldwin (D-Wis.), and Edward J. Markey (D-Mass.).
More than eight million borrowers are in default on their federal student loans, and a disproportionate number of these borrowers are low income, people of color, first generation college students, veterans, student parents, students with disabilities, and borrowers who did not complete college. Many of these borrowers have also been hit especially hard by the COVID-19 pandemic.
The Department has clear authority to remove borrowers with federally-managed student loans from default status. Under the Higher Education Act of 1965, a borrower may rehabilitate their loan and exit default status if they satisfy nine consecutive, on-time payment obligations. As a result of the nationwide payment freeze, all defaulted borrowers with federally-held student loans have now met these requirements.
If these borrowers remain in default when student loan payments and collections resume, they will be subject to wage garnishment, tax refund withholding, and aggressive collections practices. Millions of families could see their Earned Income Tax Credit and Child Tax Credit refund payments withheld, undermining the effectiveness of President Biden’s signature economic policies.
A significant number of borrowers have been in default on their loans for an extended period of time. One study found that 30% of borrowers in default remained there for at least five years. The letter also calls for the Secretary of Education to develop a permanent policy to settle these debts in a cost-effective manner, which would provide overdue relief for struggling borrowers.
A copy of the letter can be found here.
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