Millions of student loan borrowers getting ‘forgiveness’ in latest pause

(NEXSTAR) — President Biden has not only delayed student loan payments for another few months, but he’s also given 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 payments to begin again, which can help reduce “the risk of delinquency and defaults after restart.” For those who have already been impacted by delinquency and default, there’s an added bonus – you’re getting a “fresh start.”

Biden’s pause includes millions of federal loan borrowers having their delinquent or default status erased, allowing them to “reenter repayment in good standing,” the Education Department explained in a Wednesday release.

What does it mean to be delinquent and in default?

If you are just one day late on making a payment on your student loans, your loan becomes past due, otherwise known as delinquent, according to the Federal Student Aid Office. Until you pay that past due amount – or you make an arrangement like entering deferment or forbearance, or change your repayment plan – you remain in delinquency.

Once you’re delinquent for 90 days or more, your status is reported to three major national credit bureaus by your loan servicer. If you remain in delinquency, your loan may go into default (the exact time when your loan moves from delinquency to default depends on the loan you have).

There are many consequences of defaulting on your federal student loans, including the entire balance of your loan and interest that has accrued becoming immediately due; being taken to court; and losing the ability to choose a repayment plan, the Education Department explains. Some borrowers may also be subject to wage garnishment or the seizure of critical 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 the Education Department was considering the “fresh start” plan in October.

Even though borrowers in default will now have that status removed – there’s no clear timeline on when exactly that status will change for individuals – some may still miss payments when the pause lifts in September.

In late March, an analysis found 7.8 million borrowers – nearly one in three – were at high risk of missing loan payments if the pause ended in May. Authors of the analysis assigned borrowers to this group of “possible strugglers” if they were delinquent or in default on any loan during 2019 (the year before the pause); were in default on loans that were ineligible for the pause; if a new collection or bankruptcy appeared on their credit report during the pause; or if their most recent credit score was considered “deep subprime,” meaning it had fallen below 580.

“During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs,” U.S. Secretary of Education Miguel Cardona said in a statement.

What about actual student loan forgiveness?

Before Biden announced the fourth freeze on student loans, 96 lawmakers – 21 Senators and 75 members of the House – called on him to “cancel student debt now,” saying it would “provide long-term benefits to individuals and the economy, helping families buy their first homes, open a small business, or invest in their retirement. More broadly, canceling student debt would add tens of billions of dollars in GDP growth.”

During his campaign, Biden supported forgiving at least $10,000 in federal student loans per person but didn’t mention any cancellation in his statement on the latest pause. But, Education Secretary Cardona recently told NPR that “the conversations around loan forgiveness continue to happen.”

There is, however, confusion regarding Biden’s power to cancel student loans. House Speaker Nancy Pelosi has said he lacks legal authority, instead commenting “That would be an act of Congress.” Senate Majority Leader Chuck Schumer, on the other hand, has argued Biden could do it under the same legal provision Trump used to delay payments and interest accrual at the start of the pandemic, The Hill reports.

Earlier this year, White House Press Secretary Jen Psaki said, “We’re still looking at administrative options, but Congress can also send the president a bill that would provide $10,000 in debt relief, and he’d be happy to sign that bill.”

According to The Hill, Biden requested a memo from the Department of Education on his authority to forgive student debt through an executive order a year ago, but the administration hasn’t announced whether that memo is complete.

Still, there are thousands of Americans already eligible for some student loan forgiveness through various federal programs. That includes those working in specific industries and nearly 100,000 impacted by changes to the Public Service Loan Forgiveness program.