Democratic senators urge Education Department to remove millions of student loan borrowers from default status – Yahoo! Finance
A group of Democratic senators, led by Elizabeth Warren (D-MA) and Raphael Warnock (D-GA), sent a letter urging the Education Department (ED) to restore defaulted student loans to on-time status amid the ongoing payment pause, Yahoo Finance has learned.
“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,” the April 19 letter addressed to ED Secretary Miguel Cardona and seen by Yahoo Finance stated.
The interest-free payment pause is set to expire in October. Rohit Chopra, President Biden’s nominee to lead the Consumer Financial Protection Bureau (CFPB), previously warned that “an avalanche of defaults” could follow the end of the moratorium.
“Removing borrowers from default status and eliminating their record of default will provide them significant financial benefits,” the new letter stated. “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.”
Under the Higher Education Act of 1965, a loan can be rehabilitated from default status by making nine on-time payments over 10 consecutive months. After this process, any record of default is expunged from their credit history and any garnishment of wages stops.