There are more than 7 million individuals who have defaulted on their federal student loans, and the current moratorium on making student loan payments is those individuals’ best shots at getting back in good standing, especially with published reports indicating that another extension of the moratorium is likely and that the federal government is considering canceling $10,000 of student loan debt for everyone.
Forgiving $10,000 of debt would wipe out the student loan balances for about 4.5 million people, representing 10% of all borrowers. Once payments restart, the federal government has announced that everyone — even those in default — will have their loans placed in good standing, allowing those borrowers to start fresh and opening doors to repayment programs that were closed once their loans went into default.
Laws and regulations make it all-but impossible for the government to write off unpaid student loans, even decades after loans have gone into default. The government has tried many different ideas through the years to recover those debts, but its efforts have been largely unsuccessful.
“At some point, any other lender would have written many of these loans off,” said Persis Yu, the policy director of the Student Borrower Protection Center, an advocacy group, in a published report. “But the way the federal student loan system works is that we don’t do that, and we keep these essentially uncollectable debts on the books.”
Reacting to the news that the government was considering canceling $10,000 of student loan debt, the National Consumer Law Center called on President Biden to “cancel as much debt as possible.”
“Canceling federal student loan debt would provide critical relief to low-income families and people of color who are disproportionately burdened by the nation’s student debt crisis, and the Biden Administration should absolutely take action,” said Abby Shafroth, director of the NCLC’s Student Loan Borrower Assistance Project. “This bold step is necessary to address a crisis that has resulted from decades of bad policy choices and has now reached historic proportions.”