Van Hollen, Warren, Warnock, Colleagues Urge Education Department to Automatically Rehabilitate All Federally-Held Student Loans in Default
United States Senator Chris Van Hollen (D-Md.) joined Senators Elizabeth Warren (D-Mass.) and Reverend Raphael Warnock (D-Ga.) in sending a letter to Education Secretary Miguel Cardona urging the U.S. Department of Education to take swift action to automatically remove all federally-held student loan borrowers from default.
Nearly 40 million federal student loan borrowers have been able to take advantage of a halt to payments, interest, and collections first passed under the Coronavirus Aid, Relief, Economic Security Act (CARES Act) and recently extended by President Biden. Because all borrowers are considered to have "on time" payments during this pause, even if they are not actually making payments, borrowers in default now have more than nine on-time payments and are eligible for rehabilitation. Instead of having borrowers apply to remove their loans from default status, the Secretary has the authority to waive the application requirement and rehabilitate the loans without borrowers having to apply.
Our student loan system was not working well for borrowers before payments were frozen. Student debt has been particularly devastating for Black, Latino, and Native communities, who face significantly higher rates of student loan default and delinquency compared to white borrowers.
"Alarming racial disparities in student loan borrowing, repayment, and default were growing before the pandemic began and, absent immediate interventions from the Department, this broken system will continue to fail millions of borrowers after the current crisis is over," wrote the senators. "The Department has the authority to address these accumulating financial pressures and inequities by automatically removing 7.5 million borrowers with federally-managed student loans from default status."
Removing borrowers from default status and eliminating their record of default will provide them significant financial benefits. 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. The removal of the record of default will improve borrowers' credit scores, helping them to gain access to credit and more affordable rates for a home or auto loan or credit cards. Borrowers will regain eligibility for student aid, allowing them to go back to school for new education or training opportunities.
Once the Department has removed borrowers from default status, the letter calls on them to prepare a comprehensive plan to ensure that student loan servicers will provide timely, actionable, and accurate customer service to assist these borrowers with any transition back into repayment, including by providing information about opportunities for student loan cancelation or discharge and income-driven repayment.
"We urge the Department to take swift action to assist student loan borrowers throughout this pandemic using every available statutory, regulatory, and administrative authority. Given that all defaulted borrowers have satisfied the statutory requirements for rehabilitation, in accordance with the CARES Act the Department should automatically rehabilitate all 7.5 million federally-managed student loans without the need for application," the senators concluded.
Also joining the letter are Senators Bernard Sanders (I-Vt.), Cory Booker (D-N.J.), Edward J. Markey (D-Mass.), Richard Durbin (D-Ill.), Brian Schatz (D-Hawaii), Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Tammy Baldwin (D-Wis.), Tammy Duckworth (D-Ill.), and Tina Smith (D-Minn.).
A copy of the letter can be found here.
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