Student Loan Forgiveness: Defaults Could Skyrocket If Biden Plan Is Blocked — How Can You Avoid Defaulting?

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A high-ranking member of the U.S. Department of Education issued a stern warning about the risk of blocking the Biden administration’s federal student loan forgiveness program, saying doing so could lead to a “historically large increase” in delinquencies and defaults.

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The comments were made in a Nov. 15 court filing by James Kvaal, Under Secretary of Education at the Education Department. The document was tied to a lawsuit filed by two individuals backed by the Job Creators Network Foundation that challenges the legality of the loan relief program. District Court Judge Mark Pittman blocked the program, but the U.S. Department of Justice immediately filed an appeal, News Channel ABC-12 reported.

Under the Biden plan, federal student loan borrowers could get up to $20,000 of their debt canceled. The administration had hoped to begin issuing debt relief as early as this month but, as GOBankRates reported, the program has been put on hold amid numerous legal challenges. The Education Department even stopped accepting applications for loan forgiveness following Pittman’s ruling, at least temporarily.

In the filing, available on the CourtListener website, Kvaal said that if the Education Department can’t provide debt relief, “we anticipate there could be an historically large increase in the amount of federal student loan delinquency and defaults as a result of the COVID-19 pandemic. This could result in one of the harms that the one-time student loan debt relief program was intended to avoid.”

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Kvaall listed some of the consequences of defaulting on federal student loans. These include wage and tax refund garnishments as well as lower credit scores that might prevent borrowers from getting needed loans in the future.

Borrowers will also lose “the ability to receive a deferment of repayment as well as eligibility for other program benefits, such as the ability to choose a repayment plan carrying a lower monthly payment amount,” Kvaall added.

If the loan relief program does end up being blocked permanently, borrowers who worry about going into default can take certain steps to prevent that from happening. Here are some suggestions listed on the Federal Student Aid site:

Track Your Loans

After more than two years of not having to pay federal student loans due to the repayment pause, you might have lost track of your loans and terms. A positive step is to review your loans so you can make a budget for repaying them. You can find information about all of your federal student loans by logging into StudentAid.gov/aid-summary with your username and password.

Use Online Resources

Another tool you should take advantage of is the Student Loan Debt Collection Assistant, which the Education Department developed in partnership with the Consumer Financial Protection Bureau. This site offers guidance about your student loans and lets you develop a strategy for avoiding default.

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Contact Your Loan Servicer

Sometimes your loan servicer will work with you if you think you might be at risk of falling behind. Let them know if you need help making your payments or have experienced a life change that might impact your ability to pay. Your servicer might provide the following options:

  • Switch repayment plans to get a lower monthly payment
  • Enroll in an income-driven repayment plan
  • Change your payment due date
  • Provide deferment or forbearance

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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