US gov’t is pausing payments for more student loans, but only if they’re in default

By Stacy Cowley

About 1 million student loan borrowers who were left out of earlier relief efforts are getting a reprieve — but only if they have defaulted on their loans.

The Education Department said Tuesday that it will temporarily stop collecting on defaulted loans that were made through the Family Federal Education Loans program, or FFEL, and are privately held.

“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,” said Education Secretary Miguel Cardona.

The change, however, still leaves millions of other borrowers in that program responsible for payments while the bulk of the country’s student loan borrowers have had theirs paused.

Since last March, 43 million borrowers with federal loans owned by the government have had the option to halt their payments. But roughly 6 million borrowers whose loans were part of FFEL were left out, because the government did not own the loans.

For many decades, federal student loans were insured by the government but made by private lenders. In 2010, Congress ended that system and switched to making direct loans owned by the Education Department. During the Great Recession, the government purchased some — but not all — of the private lenders’ existing federal loans.

That created a two-tiered system last year when the Education Department put the loans it directly holds, including FFEL loans that it owned, on a pandemic timeout. Loans that were still privately held were not affected.

Tuesday’s move does not help borrowers who are still making payments on those privately held FFEL loans or have fallen only a few months behind. There are around 5.4 million borrowers in that category, who together owe $134 billion, according to Education Department data.

Tuesday’s announcement is intended to prevent defaulted borrowers from having their tax refunds seized by the Treasury Department through a program that is often used to collect overdue student loan debts. Any seized refunds or wage garnishments that were taken since March 2020 will be retroactively refunded, the Education Department said.

The freeze will extend through Sept. 30, when collections are scheduled to restart on all federal student loans. Nearly everyone who is eligible for the freeze has taken advantage of it: Of the nearly 43 million people with federally owned loans, only 400,000 are still making payments, according to Education Department data.

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