The Education Department announced Tuesday a new round of student loan relief for approximately 1 million borrowers, continuing a week-long chain of announcements aimed at relieving financial burden for borrowers who defaulted on student loans during the coronavirus pandemic.
“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,” Education Secretary Miguel Cardona said in a statement. “Our goal is to enable these borrowers who are struggling in default to get the same protections previously made available to tens of millions of other borrowers to help weather the uncertainty of the pandemic.”
The relief is targeted only to borrowers who have defaulted on their Federal Family Education Loan Program loan, which parents can take out on behalf of their children to help pay for tuition and students can take out on their own.
Editorial Cartoons on Education
Under this specific federal loan program, known as FFEL, private lenders made federal student loans to borrowers and guaranty agencies insured the loans, which were, in turn, reinsured by the federal government. When borrowers default on FFEL loans, they are transferred from the lender to the guaranty agency.
Some FFEL loans are currently held by the Education Department because they were purchased by the federal government during the financial crisis over a decade ago, but many others remain with private and commercial lenders.
The Education Department’s announcement Tuesday will expand the 0% interest rate and pause of collections activity to more than 1 million borrowers who defaulted on a privately held FFEL loan and will safeguard roughly 800,000 borrowers who were at risk of having their federal tax refunds seized to repay a defaulted loan.
The new actions will be made retroactive to the beginning of the coronavirus pandemic last March.
Senior department officials said during a press call Tuesday that they plan to work with private lenders to automatically return any tax refunds seized or wages garnished over the past year – though that’s proven a slow and difficult process in the past.
In addition, borrowers who made voluntary payments on loans during the past year will have the option to request a refund, and the department will work with the guaranty agencies, who hold the defaulted FFEL loans, to implement the 0% interest rate for those borrowers.
Department officials also said that any privately held FFEL loans that went into default since last March will be returned to good standing.
The new relief outlined Tuesday follows a similar announcement from the Education Department earlier this week, when officials unveiled a plan to reverse federal student loan reinstatements that occurred during the coronavirus pandemic for borrowers whose loans had been discharged after they became fully and permanently disabled – a decision that’s set to provide full relief to 41,000 borrowers who have had more than $1.3 billion in loans reinstated since last March.