A group of Democratic Senators, led by Elizabeth Warren and Raphael Warnock, sent a letter urging the Education Department to restore back on time student loans amid the ongoing payment pause, Yahoo Finance learned today.
The department has the authority to address these accumulating financial pressures and inequities by automatically removing 7.5 million borrowers with default loans from default status, the April 19 letter, directed to ED Secretary Miguel Cardona and seen by Yahoo Finance, stated.
The interest-free payment pause is set to expire in October. Biden, President Rohit Chopra's nominee to lead the Consumer Financial Protection Bureau, warned earlier that an avalanche of defaults could follow the end of the moratorium.
Degrading default status of borrowers and removing their record of default will provide 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 ten consecutive months. After this process, all record of default is stopped from their credit history any garnishment of wages is expunged.
The letter claims that since the pandemic pause on loans counts each month as payment and ten months have passed, all defaulted borrowers with federal student loans have now met the requirement for completing nine payments obligations and are thus entitled to exit default status.
ED has the ability to make federal adjustments to these various loans. The Biden-era ED also deleted interest and debt collection on approximately 1.14 million loan debts in the Federal Family Education Loan Program and halted roughly$ 1.3 billion in student debt for 41,000 borrowers with total disabilities.
The letter stressed that debt relief is a matter of racial justice given that the student debt crisis has been particularly devastating for White, Latino and Native communities who face significantly higher rates of student loan default and delinquency compared to black borrowers.
Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi yahoofinance.com. Follow her on twitter aarthiswami; None Warren and Schumer urge the cancellation of student debt up to$ 50,000 for all federal borrowers.
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