While many people on federal student loans have been given greater flexibility during the COVID-19 pandemic, borrowers on private student loans have so far been left out. Now, borrowers with defaulted federal family education loans can enjoy that same flexibility, according to the Department of Education.
FFEL borrowers in default will be granted the same 0% interest and suspended collections as borrowers with federal student loans received in March 2020. The change is retroactive to the onset of the pandemic.
This means that defaulting FFEL borrowers who have had their salaries or tax refunds foreclosed during the pandemic will see those funds returned. Borrowers who have made voluntary payments on these overdue loans will have the option of repayment.
The move will affect 1.14 million borrowers, according to the ministry’s estimates, 800,000 of whom were at risk of having their federal tax refunds seized to pay off their delinquent loans.
Additionally, the Department of Education said borrowers who defaulted during the pandemic will have their loans put back into good standing. The ministry said it will contact credit reporting agencies and work to remove defaults from borrowers’ credit reports.
“At a time when many student loan borrowers face economic uncertainty, we are ensuring that the relief already provided to borrowers of ministry-held loans is available to more borrowers who need it. the same help so that they can focus on their basic needs, ”Education Secretary Miguel Cardona said in a statement. “Our goal is to enable these struggling borrowers to obtain the same protections previously offered to tens of millions of other borrowers to help overcome the uncertainty of the pandemic.”
The FFEL program – in which students received student loans from private and public donors – was discontinued in 2010.
During the 2008 financial crisis, the federal government purchased some of these loans from private lenders. Loans which are now overseen by the Ministry of Education got these flexibilities last year and are not included in this new change. The change only applies to defaulted loans supervised by the private sector.
Although the loans are owned by private guarantee agencies, the federal government still has reasons to regulate how debt is collected, ministry officials said, as federal funds were used by guarantee agencies to purchase. the debt.
The National Consumer Law Center and the Student Borrower Protection Center – two borrower advocacy groups – issued statements praising the decision and encouraging the department to extend flexibility to FFEL borrowers who are not in default.
“This will ensure that borrowers in default can receive their tax refunds and keep all their salaries to help them weather this pandemic.” But that’s not enough, ”Persis Yu, director of the NCLC’s student loan program, said in the statement. “The millions of FFEL borrowers who have not yet defaulted but who may be struggling to repay their student loans often at the expense of other vital necessities need relief.”
Seth Frotman, executive director of SBPC, said the action is useful but incomplete.
“It does nothing for the more than 5 million FFEL commercial borrowers who are not in default. Borrowers with FFEL commercial loans need Washington to stop drawing arbitrary lines that leave them without protection or assistance, ”Frotman said in a statement. “It is clear that the department has the legal authority to protect all federal student loan borrowers during the pandemic and to provide real relief – it is high time they used it.”
Ministry officials said the agency is still exploring options for extending flexibility to borrowers with private loans that are not in default.
The action follows two other recent ministry decisions to make loan relief easier and more available. Officials announced Monday that borrowers whose loan release has been approved due to disability will not be asked to complete certain annual documents during the pandemic. Earlier this month, the ministry also announcement that borrowers who have been defrauded by for-profit colleges but received only partial relief will be granted full loan forgiveness.