The vast majority of those who default on student loans have faced persistent economic and social vulnerability. These measures are not only punitive, they’re also self-defeating: By undermining someone’s ability to cover basic expenses, return to school, keep their job or even drive a car, the student loan default system makes it harder for someone who is already struggling to secure their financial footing.
#STATES REVOKING LICENSES OVER STUDENT LOAN DEFAULTS PROFESSIONAL#
In addition, the federal government, states and colleges too often impose a series of harsh penalties that are unrelated to collecting payments, including restricting access to further federal aid, withholding a student’s academic transcripts and suspending professional and even driver’s licenses.
Ironically, borrowers in default are not even allowed to enroll in income-driven repayment (IDR) plans, which seek to make monthly payments more affordable (as low as $0) and get borrowers back on track. The federal government also wields vast extra-judicial powers to collect student debt, including garnishing wages and seizing Social Security payments and tax refunds based on the child tax credit and the earned income tax credit.īy seizing these benefits, the federal government takes away critical financial lifelines that reduce poverty for millions of families. The entire loan balance becomes immediately due, and borrowers face ongoing damage to their credit scores, along with a range of significant fees. Related: ‘You can’t staff for that’: Chaos looming for millions restarting their student loan paymentsįederal student loan default, defined as a borrower missing payments for at least 270 days, comes with severe consequences. Default disproportionately affects Black and first-generation students, and most of those who experience default entered college from a low-income background. While this reprieve is critical, if the Education Department fails to provide more permanent protections, millions of borrowers are at risk of economic upheaval when it ends in November.Įven before the pandemic, far too many Americans were struggling to manage their student loan debt: At the start of 2020, one-quarter of Direct Loan borrowers were either behind on payments or in default, and over a million borrowers entered default in 2019 alone. The Education Department also recently announced that default-related seizures of tax refunds and other federal benefit payments will be halted an additional six months after repayment resumes. In response to the Covid-19 crisis, the federal government paused student loan payments, interest and collections in March 2020 and recently extended that pause until May 2022. It is especially abhorrent that a government program intended to create equitable opportunities for all students instead perpetuates racial and economic gaps in financial stability and mobility. Like the well-documented effects of traffic fines and court fees, the penalties resulting from federal student loan default plunge too many Americans deeper into financial instability, perpetuating rather than helping to resolve the vicious cycle of poverty. For too long, the dream of pursuing a college degree has turned into a nightmare of loan default for millions of students.
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