Family Federal Education Loan Borrowers Get a Reprieve if They Have Defaulted

Approximately one million student loan borrowers who have been excluded from previous relief efforts will receive redress – but only if they have defaulted on their loans.

The Department of Education announced Tuesday that it will temporarily cease collecting defaulted loans that are privately held under the Family Federal Education Loans program.

“Our goal is to give these defaulted borrowers the same protection that was previously given to tens of millions of other borrowers,” said Education Minister Miguel Cardona.

However, the change still leaves millions of other borrowers in this program responsible for making payments while the bulk of the country’s student loan borrowers have taken a break.

As of March last, 43 million borrowers with federal government-held loans have had the option to stop their payments. However, around six million borrowers whose loans were part of the Family Federal Education Loans (FFEL) program were left out because the government did not own the loans.

For many decades, federal student loans were government insured but were made by private lenders. In 2010, Congress ended this system and switched to direct education loans. During the Great Recession, the government bought some – but not all – of the existing federal loans from private lenders.

This resulted in a two-tier system last year when the education department put the loans it holds directly, including the FFEL loans it owned, on pandemic break. Loans that were still privately owned were not affected.

Tuesday’s move is not helping borrowers who are still making payments on those privately held FFEL loans or who are just a few months behind schedule. According to the Department of Education, there are roughly 5.4 million borrowers in this category who together owe $ 134 billion.

Tuesday’s announcement is designed to prevent defaulted borrowers from having their tax refunds seized by the Treasury Department through a program often used to collect past due student loan debts. Any seized refunds or garnishments made since March 2020 will be refunded retrospectively, the education department said.

The freeze will last through September 30th, when collections are due to restart for all federal student loans. Almost everyone who is eligible for the freeze has made use of it: of the almost 43 million people with federal loans, only 400,000 make payments, according to the Ministry of Education.

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