- The Education Department is weighing a “safety net” for borrowers when student-loan payments resume, per Politico.
- It includes a 90-day grace period for any missed payments and lifting 7 million borrowers from default.
- Still, advocates believe broad student-debt cancellation is the best way to help borrowers.
There could be some good news for those borrowers, however. President Joe Biden’s Education Department reportedly has a plan to address those concerns – but it may not go far enough.
Politico reported on Monday that the department is weighing a range of ideas to ease borrowers back into repayment and give them more flexibility. According to documents obtained via the Freedom of Information Act and sources familiar with the plans, the department will establish a “safety net period” during which borrowers who miss payments during the initial 90 days after the freeze ends will be automatically placed on forbearance. That means they won’t see the hit to their credit scores that would normally happen with a missed payment.
The department is also weighing plans to make it easier for borrowers to enroll in income-based repayment plans by allowing them to verify their incomes over the phone, according to Politico. Additionally, there are plans to automatically erase 7 million borrowers’ defaulted payments and give them a “fresh start,” but details for those plans have not been finalized yet.
Sens. Elizabeth Warren and Raphael Warnock sent a letter to Education Secretary Miguel Cardona in April requesting he lift all federal student-loan borrowers from default amid the financial strains brought on by the pandemic, urging the department to use its existing authority to remove their default statuses to improve their credit scores and “economic well-being.”
Other plans include improved and targeted outreach on payment programs to borrowers, which is something the department has been touting amid concerns with restarting payments next year.
As Insider has reported, the department is likely to encounter major administrative hurdles in February when it has to not only resume payments for 43 million borrowers, but also transition 16 million of them to new student-loan servicers after three companies announced plans to shut down their services.
Regardless of the impact the department’s plans will have on borrowers, many of them have said they do not feel confident in their abilities to make those payments in February and see broad student-debt cancellation as the only way out. While Biden has canceled student debt for targeted groups of borrowers, he has yet to comment on whether every borrower will have their debt wiped out – an idea Warren believes is vital to reform the student-loan industry.
“Ultimately, the student loan system is broken,” Warren previously told Insider, adding that the only way to protect borrowers “is to cancel student debt, so that no borrower’s future is held hostage by corporations profiting off their financial distress.”