Student loan borrowers who are behind on payments ‘provide the most compelling evidence’ that the system needs ‘fundamental change’, a senior education official says

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  • Education Undersecretary James Kvaal said the consequences of defaulting on student loans are too dire.

  • Failure to pay “should not be a life sentence of financial struggle and despair”, he said.

  • The ministry has announced its intention to restore the good standing of defaulting borrowers before payments resume.

The consequences of late payment of a student loan can be serious – and a senior education official said it shows how broken the system is.

At a virtual event led by the advocacy group Student Borrower Protection Center on Tuesday, Undersecretary for Education James Kvaal joined to talk about the problems that arise when student borrowers do not repay their debts or are late. If a borrower can’t get out of default, they may be subject to wage garnishment and garnishment of federal benefits, like Social Security, and it can be difficult to escape a cycle.

“The consequences of defaulting are so punitive, it’s like whoever designed these policies is assuming that borrowers are somehow trying to beat the system. Defaulting on your student loan is pretty much the furthest thing from a get-rich-quick scheme. It’s more like a stay-in-debt-forever scheme,” Kvaal said.

“Overall, borrowers who default on their loans are people who have been let down by lagging policies and investments in college affordability,” Kvaal added. “They provide the most compelling evidence that the student loan system needs fundamental change.”

About 7 million student borrowers are in default, and a report from the Government Accountability Office in January found that 50% of federal borrowers were at risk of falling behind when payments, which were paused for the duration of the pandemic, resume. To combat this risk, when the Ministry of Education extended the payment pause for a fourth time until August 31, it also announcement a plan to reinstate all defaulting borrowers before they have to re-enter repayment.

Details of how this will happen have yet to be announced, however, and there is speculation the break could be extended once again after the department asked student loan companies to stop. messages to borrowers surrounding the restart of payment. President Joe Biden should also announce a decision on a broad student loan forgiveness by the end of August, but with the month almost halfway through, borrowers are keep waiting for updates.

As the ministry looks for ways to help defaulting borrowers, many still fear they won’t be able to pay without an extended payment break and debt forgiveness. Initiated previously spoken to Robin O’Brien, a 61-year-old woman with $64,000 in student debt who can barely pay her medical bills because of the long COVID and isn’t sure how she’ll handle the extra expenses once the student loan payments will resume.

“I don’t know how I’m going to afford it,” O’Brien said. “I don’t think it’s something I can afford.”

Kvaal acknowledges this struggle and said he will try to help as many eligible borrowers as possible.

“There are lives at stake here,” he said, adding that “failing to pay a student loan shouldn’t be a life sentence of financial struggle and despair.”

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