(NEXSTAR) – President Biden not only delayed student loan repayments for a few more months, but he also gave some borrowers a bit of “forgiveness.”
The U.S. Department of Education described the additional pause as a good way for borrowers to plan for resuming payments, which can help reduce “the risk of delinquency and default after the restart.” For those who have already been hit by delinquency and defaults, there’s an added bonus – you get a “fresh start”.
Biden’s break includes millions of federal borrowers whose delinquent or default status is cleared, allowing them to “reinstate repayment in good standing,” the Department of Education explained in a Wednesday statement.
What does it mean to be delinquent and in default?
If you are only one day behind on your student loan payments, your loan becomes delinquent, otherwise known as delinquent, according to the Federal Office of Student Aid. Until you pay that overdue amount – or make an arrangement like entering a deferral or forbearance, or change your repayment plan – you remain overdue.
Once you are 90 days or more past due, your status is reported to three major national credit bureaus by your loan manager. If you remain in default, your loan may be in default (exactly when your loan goes from past due to default depends on the loan you have).
Failure to pay your federal student loans has many consequences, including your total loan balance and accrued interest becoming immediately due; to be brought to justice; and losing the ability to choose a repayment plan, says the Ministry of Education. Some borrowers may also face wage garnishment or seizure of essential benefits like Social Security, according to Business Insider.
How many people are impacted?
More than 7 million borrowers are in default on their federal student loans, according to Politico, which first reported that the Department of Education was considering the “fresh start” plan in October.
Even though defaulting borrowers will now see that status removed – there’s no clear timeline on exactly when that status will change for individuals – some may still miss payments when the break lifts in September.
At the end of March, an analysis found that 7.8 million borrowers – almost one in three – were at high risk of not repaying their loan if the break ended in May. The authors of the analysis categorized borrowers into this “potential difficult” group if they were past due or defaulted on a loan in 2019 (the year before the break); were in default on loans not eligible for the break; if a new collection or bankruptcy appeared on their credit file during the break; or if their most recent credit score was considered “deep subprime”, meaning it had fallen below 580.
“During the break, we will continue our preparations to give borrowers a fresh start and ensure that all borrowers have access to repayment plans that are tailored to their circumstances and financial needs,” the US Secretary of State said. Education, Miguel Cardona, in a press release.
What about the actual student loan forgiveness?
Before Biden announced the fourth student loan freeze, 96 lawmakers — 21 senators and 75 House members — called on him to “cancel student debt now,” saying it would “bring long-term benefits to individuals. and the economy, helping families buy their first home, open a small business or invest in their retirement. More broadly, canceling student debt would add tens of billions of dollars to GDP growth.
During his campaign, Biden supported forgiving at least $10,000 in federal student loans per person, but did not mention any cancellations in his statement during the last break. But, Education Secretary Cardona recently told NPR that “conversations about loan forgiveness continue to take place.”
There is, however, confusion regarding Biden’s power to cancel student loans. House Speaker Nancy Pelosi said he had no legal authority, commenting instead “It would be an act of Congress.” Senate Majority Leader Chuck Schumer, meanwhile, argued that Biden could do so under the same legal provision Trump used to delay payments and interest accrual early in the pandemic, reports The Hill.
Earlier this year, White House press secretary Jen Psaki said, “We are still considering administrative options, but Congress can also send the president a bill that would provide $10,000 in tax relief. debt, and he would be happy to sign this bill. ”
According to The Hill, Biden requested a memo from the Department of Education on his authority to cancel student debt through an executive order a year ago, but the administration has not announced whether that memo is complete.
Yet thousands of Americans are already eligible for student loan forgiveness under various federal programs. This includes those working in specific industries and nearly 100,000 affected by changes to the Civil Service Loan Forgiveness Scheme.
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