5 million student borrowers at risk of “financial delinquency”
Earlier this month, the Biden administration announced a extension of the moratorium on the repayment of federal student loanst. The suspension, which began to battle the financial impact of the Covid pandemic, has been extended several times and was most recently due to end in May. Citing inflation and Covid-related financial concerns, President Biden announced the deadline would be extended to August, allowing millions of borrowers to breathe a temporary sigh of relief. But when payments resume, millions of people will be at risk of financial calamity, warns a new report from the Consumer Financial Protection Bureau.
Forty-five million Americans currently carry the burden of student loan debt totaling nearly $1.7 trillion. When the moratorium is lifted, experts expect households to lose on average $393 per month their monthly budgets to pay off their student loans, with some paying significantly higher monthly payments. In addition to the loss of the child tax credit in December and record inflation, many low- and middle-income families are at risk of losing the ground they gained when the refund started.
A recent CFPB report sheds light on the number of borrowers who will be negatively impacted when student loan repayments resume, and the numbers are sobering. The CFPB looked at a subset of borrowers, about 30 million, which represents nearly 80% of Americans who have student loan debt, and determined how many may have difficulty resuming student loan payments based on five risk factors. According to the report, these risk factors are “pre-pandemic delinquency among students loans, pre-pandemic payment assistance on student loans, several student loan managers, outstanding on other credit products since the start of the pandemic, and new collections during the pandemic.
They found that 15 million borrowers, or almost half, have at least one risk factor, while 5 million have two or more. The CFPB has determined that people with two or more risk factors are at risk of serious financial consequences, including future delinquency on the loans once repayments have resumed.
As part of Biden’s extension, he also announced that all borrowers in arrears or default on their loans will be returned to good standing, giving them a so-called “fresh start” that would undo wage garnishments and tax refund foreclosures and allow borrowers to establish a repayment plan. There is no indication, however, that the fresh start would apply to those who become delinquents after the moratorium ends.
The CFPB’s findings underscore the administration’s failure to deliver on one of its key campaign promises – the cancellation of $10,000 in student debt for those with federally backed student loans. While some loan forgiveness has taken place, the large-scale relief promised during the campaign trail has not materialized despite being a promise Biden could deliver without congressional cooperation.
Now, it looks like some Senate Democrats may have left faith in the administration and want to make sure Biden keeps his promise to return borrowers to his position and not keep kicking the box. proverbial as it did with loan forgiveness.
Elizabeth Warren and a group of Democratic senators, including Raphael Warnock, Bernie Sanders, Cory Booker, Chris Van Hollen, Tammy Baldwin, Richard Blumenthal and Dick Durbin, sent a letter to Education Secretary Miguel Cardona asking for clarification on how the Ministry of Education plans to implement the “fresh start” for defaulting borrowers.
“This decision, which we requested in a November 2021 letter, has the potential to bring significant relief to millions of borrowers, especially those who are struggling the most to repay their loans,” wrote the lawmakers. “We are writing now to request further details of the steps ED (Education Department) intends to take to implement this plan and protect borrowers who have been in default for an extended period.”
The group requested responses from the DOE by May 4 to the following questions included in the letter:
- How many borrowers will benefit from the “fresh start” program?
- Will deleting the default status happen automatically?
- How will borrowers with private FFEL loans be impacted?
- And will the ministry forgive the loans of those in long-term default?
The program, if implemented successfully, is expected to benefit millions of borrowers who are currently delinquent or in default, but it remains to be seen how the administration will provide relief to the estimated 5 million at risk of default. of payment even if reimbursement resumes.