Biden Administration Releases Policy Memo on Efforts to Prevent Student Loan Default
By Maria Carrasco, NASFAA Staff Reporter
Before the Biden administration left office, the Department of Education (ED) released a policy memo outlining the department's initiatives to prevent borrowers from entering student loan default and stressing the need for the new administration to continue these efforts in order to keep default rates low.
The memo, drafted by Under Secretary James Kvaal, highlighted struggles borrowers may have in starting or returning to student loan repayment after an almost five-year hiatus due to the Covid-19 pandemic, along with challenges borrowers may face if they enter default. Those penalties include the seizure of wages, tax refunds, Social Security, and other federal benefits.
While the department implemented a 12-month on-ramp period to the resumption of student loan repayment – where borrowers were not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collectors for missing monthly payments – the initiative officially came to an end in October 2024 with new delinquencies set to occur in January 2025.
The memo goes on to explain that new default consequences could begin as soon as July of 2025 for borrowers already in default.
In order to prevent these adverse outcomes, Kvaal’s memo listed three key priorities the Biden administration has taken to support borrowers.
The three priorities Kvaal listed in the memo include: default prevention efforts; creating pathways to affordable repayments for borrowers in default; and making repayment options “easily” understandable for borrowers.
In terms of default prevention efforts the department sought to make it easier for borrowers to enroll, and remain in, an income-driven repayment plan. Additionally, the department has ensured borrowers are screened for loan forgiveness opportunities before they formally enter default, Kvaal wrote. Lastly, the department said it has prioritized making it easier for borrowers to repay their loans, along with bettering student loan servicing.
When it comes to affordability, Kvaal outlined the department’s efforts to protect more of a borrower’s Social Security benefits from being seized for defaulted debt.
According to Kvaal, “in the coming months,” borrowers receiving Social Security will be able to protect a “reasonable and appropriate amount” of their benefits — which is $1,883 a month in most states (150% of the federal poverty guideline) from being offset after defaulting on student loans. That’s an increase from the $750 protection currently. Further, Kvaal explained that this protection will be updated annually based on the federal poverty guideline. Federal Student Aid (FSA) will also use agency data to determine whether borrowers would face financial hardship in default and will “apply this protection as appropriate.”
According to Kvaal, this action will halt Social Security offsets for more than half of affected borrowers and reduce the offset amount for many others.
Lastly Kvaal’s memo highlighted the department’s work of improving communications by conducting an independent review of FSA and vendor communication plans, engaging with stakeholders, consumer-testing communication campaigns, and coordinating FSA and vendor communications to improve the borrower experience.
According to the Kvaal, the number of borrowers in default is 30% lower than it was before the pandemic due to the department’s efforts.
The memo was sent on January 13 from Kvaal to Denise Carter, who was just announced as acting ED secretary until the position is filled by appointment, and who has been serving as acting Chief Operating Office of FSA since Richard Cordray left the post last year. However, the memo was published by The Institute for College Access and Success (TICAS).
Sameer Gadkaree, president of TICAS, applauded ED’s actions to prevent borrowers from entering default and provide protections for those who have fallen behind on repayment.
“The policies outlined in the memo reflect long standing TICAS recommendations to make it easier for borrowers to access affordable student loan payments and reduce the punitive and self-defeating consequences of student loan default,” Gadkaree said in a statement. “By seizing these benefits, the federal government takes away critical financial lifelines that reduce poverty for millions of families.”
Publication Date: 1/27/2025
David S | 1/27/2025 5:26:16 PM
The fact that there's such a thing as garnishment of Social Security benefits for defaulted student loans is such a major policy failure. In the UK (and probably in other countries such as Ireland, Australia and New Zealand whose student loans are more or less modeled after theirs, but I'm not sure), student loan borrowers age out. You reach a certain age, you don't owe anymore, because the student loan repayment system is not primarily focused on punishment.
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