WASHINGTON–The Biden administration is suspending collections on defaulted student loans held by more than one-million borrowers. 
The move extends relief to 1.14 million students who borrowed under an older loan program known as the Federal Family Education Loan Program, and then defaulted on those loans, According to the Wall Street Journal. The report noted this group hadn’t been covered by prior coronavirus-related adjustments to collections and payment requirements.
FFEL loans are guaranteed by the federal government but held by private lenders. Some defaulted loans were purchased by the Education Department during the financial crisis more than a decade ago, but others are still held by private entities, the Journal reported.
FFEL borrowers whose loans are owned by private lenders and who are not in default aren’t affected by the administration’s announcement, according to the Journal. A senior agency official told the publication there are a couple-million borrowers in that category, and the Education Department is “still looking at what our options are there” for extending debt relief to them.
A 0% Effective Rate
The Education Department has also set interest rates on privately held defaulted FFEL loans at 0%, effectively suspending interest payments, according to the Journal. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the nation first declared a national emergency for the Covid-19 pandemic. Any loans that went into default since that time will also be restored to good standing, which could help repair borrowers’ credit scores, the Journal added.
“At a time when many student-loan borrowers have faced economic uncertainty, we’re ensuring that relief already provided to borrowers of loans held by the department is available to more borrowers who need the same help so they can focus on meeting their basic needs,” said Education Secretary Miguel Cardona.
According to the Education Department, more than 800,000 borrowers in the FFEL program were at risk of having their federal tax refunds seized to repay defaulted loans, the Journal reported.
Returning Funds
The government said it would work to automatically return funds to borrowers who have already had tax refunds seized or wages garnished, and those who made voluntary payments during the past year will have the option of being refunded the money.
The Biden administration has extended to at least Sept. 30 a general pause on interest payments and collections on most federal student loans.
The move extends relief to 1.14 million students who borrowed under an older loan program known as the Federal Family Education Loan Program, and then defaulted on those loans, According to the Wall Street Journal. The report noted this group hadn’t been covered by prior coronavirus-related adjustments to collections and payment requirements.
FFEL loans are guaranteed by the federal government but held by private lenders. Some defaulted loans were purchased by the Education Department during the financial crisis more than a decade ago, but others are still held by private entities, the Journal reported.
FFEL borrowers whose loans are owned by private lenders and who are not in default aren’t affected by the administration’s announcement, according to the Journal. A senior agency official told the publication there are a couple-million borrowers in that category, and the Education Department is “still looking at what our options are there” for extending debt relief to them.
A 0% Effective Rate
The Education Department has also set interest rates on privately held defaulted FFEL loans at 0%, effectively suspending interest payments, according to the Journal. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the nation first declared a national emergency for the Covid-19 pandemic. Any loans that went into default since that time will also be restored to good standing, which could help repair borrowers’ credit scores, the Journal added.
“At a time when many student-loan borrowers have faced economic uncertainty, we’re ensuring that relief already provided to borrowers of loans held by the department is available to more borrowers who need the same help so they can focus on meeting their basic needs,” said Education Secretary Miguel Cardona.
According to the Education Department, more than 800,000 borrowers in the FFEL program were at risk of having their federal tax refunds seized to repay defaulted loans, the Journal reported.
Returning Funds
The government said it would work to automatically return funds to borrowers who have already had tax refunds seized or wages garnished, and those who made voluntary payments during the past year will have the option of being refunded the money.
The Biden administration has extended to at least Sept. 30 a general pause on interest payments and collections on most federal student loans.
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