Student loan borrowers gather near the White House to demand that President Biden cancel student debt on May 12, 2020.
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A top U.S. Department of Education official said in a new court filing that student loan default rates could spike if the Biden administration’s loan forgiveness plan is thwarted. block.
The warning came as the Justice Department asked a federal judge in Texas to uphold an order temporarily blocking the Biden administration’s debt forgiveness program.
“Unless [Education] As the Department is authorized to reduce debt, we anticipate there may be a historically large increase in the amount of federal student loan defaults and defaults as a result of the COVID-19 pandemic,” said Deputy Minister of Education. James Kvaal said in the filing.
Biden administration stopped accepting applications for student loan forgiveness plans last week after Judge Mark Pittman of the United States District Court for the Northern District of Texas called the policy “unconstitutional” and repealed it.
Student loans hit hard before Covid
Even before the pandemic, when the U.S. economy was enjoying one of its healthiest periods in history, the federal student loan system was plagued with problems.
According to estimates by higher education expert Mark Kantrowitz, only about half of borrowers will be repaid in 2019. About 25% — or more than 10 million people — are in default or default. and the remainder have applied for temporary relief for troubled borrowers, including deferrals or deferrals.
These dismal numbers have led to comparisons with mortgage crisis of 2008.
Federal student loan payments have been halted since March 2020, when the coronavirus pandemic first hit the United States and crippled the economy. Resuming bills for more than 40 million Americans would be a huge undertaking, and the Biden administration had hoped to smooth the transition by first erasing a large portion of student debt.
However, since President Joe Biden announced his plan in August to cancel up to $20,000 for tens of millions of borrowersConservative groups and Republican states moved quickly to try to stop it.
Despite offering students deferred student loans during previous natural disasters, Kvaal said in the filing, default rates have skyrocketed.
“[T]He added that the one-time student loan debt relief program aims to avoid” that problem.
18 million borrowers most at risk of default
Kvaal said the borrowers most at risk of default are those whose student loan forgiveness plan Biden will wipe out their balances completely. The administration estimates its policy will do so for about 18 million people.
“These student loan borrowers have a reasonable expectation and belief that they will not have to pay extra for their federal student loan,” Kvaal said. “This trust can prevent them from making the payments even if the Department is prevented from doing the write-off.”
“Unless the Department is authorized to offer a one-time student loan relief, we expect this group of borrowers to experience higher default rates due to continued confusion about what they owe,” he said.
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