Department of Education Announces Expansion of COVID-19 Emergency Flexibilities to Additional Federal Student Loans in Default

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Department of Education Announces Expansion of COVID-19 Emergency Flexibilities to Additional Federal Student Loans in Default

March 30, 2021

Today, the U.S. Department of Education (Department) announced an expansion of the pause on federal student loan interest and collections to all defaulted loans in the Federal Family Education Loan (FFEL) Program. This action will help more than one million additional borrowers burdened by debt during the COVID-19 emergency.

“At a time when many student loan borrowers have faced economic uncertainty, we’re ensuring that relief already provided to borrowers of loans held by the Department is available to more borrowers who need the same help so they can focus on meeting their basic needs,” said Education Secretary Miguel Cardona. “Our goal is to enable these borrowers who are struggling in default to get the same protections previously made available to tens of millions of other borrowers to help weather the uncertainty of the pandemic.”

Under the FFEL Program, private lenders made federal student loans to students and guaranty agencies insured these funds, which were, in turn, reinsured by the federal government. After these loans enter default, they are transferred from the lender to the guaranty agency. While some FFEL Program loans are now held by the Department because they were purchased by the federal government during the financial crisis over a decade ago, many others remain with private entities.

Today, the Department is announcing that it will expand the 0% interest rate and pause of collections activity to 1.14 million borrowers who defaulted on a privately-held FFEL Program loan. This action will protect more than 800,000 borrowers who were at risk of having their federal tax refunds seized to repay a defaulted loan. This relief will be made retroactive to March 13, 2020, the start of the COVID-19 national emergency.

The Department will work to automatically return any tax refunds seized or wages garnished over the past year. Borrowers who made voluntary payments on any of these loans during the past year will have the option to request a refund of those amounts. The Department will also work with the guaranty agencies, who hold these defaulted FFEL Program loans, to implement the 0% interest rate for these borrowers.

In addition, any of these loans that went into default since March 13, 2020, will be returned to good standing. The guaranty agencies that hold those loans will assign them to the Department and request that the credit bureaus remove the record of default.

This action builds upon steps already taken by the Biden-Harris Administration to help federal student loan borrowers. Those steps include pausing student loan interest, repayment, and collections activity for tens of millions of borrowers with loans held by the Department through Sept. 30, 2021. The Department also requested a waiver from the Small Business Administration so that individuals—despite currently or previously defaulting on federal student loans or previously being delinquent on payments—will still be eligible for a Paycheck Protection Program loan and related loan forgiveness. The waiver immediately helped nearly 30,000 small business owners.