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without student loan forgiveness, defaults can rise

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Student loan borrowers gather outside the White House to tell President Biden to cancel student debt on May 12, 2020.

Paul Morighi | Getty Images Entertainment | Getty Images

Student loan default rates could rise sharply if the Biden administration’s loan forgiveness plan is blocked, a top U.S. Department of Education official said in a new court filing.

The warning came as the Justice Department asked a federal judge in Texas to stay an order that temporarily blocked the Biden administration’s debt relief program.

“If only [Education] As the department is allowed to collect debt, we anticipate a large increase in federal student loan delinquencies and defaults as a result of the COVID-19 pandemic,” said Under Secretary of Education James Quall. said in submission.

The Biden administration has stopped accepting applications for the student loan forgiveness plan last week after Judge Mark Pittman of the U.S. District Court for the Northern District of Texas called the policy “unconstitutional” and struck it down.

Student loans were plagued by pre-Covid problems

Federal student loan payments have been suspended since March 2020 the coronavirus pandemic first hit the US and crippled the economy. Rebuilding accounts for more than 40 million Americans will be a huge task, and the Biden administration hoped to ease the transition by first forgiving a large portion of student debt.

However, since then In August, President Joe Biden announced his plan to eliminate payments up to $20,000 for tens of millions of borrowersconservative groups and Republican states quickly tried to block it.

Even though student loan borrowers were offered leniency during previous disasters, default rates still skyrocketed, Quaal said in a statement.

“[T]He added that the one-time student loan debt relief program was supposed to avoid that problem.

18 million borrowers are most at risk of default

The borrowers most at risk of default are those for whom Biden’s student loan forgiveness plan would completely wipe out the balance sheet, Kwaal said. The administration estimated that its policy would result in approximately 18 million people being displaced.

“These student loan borrowers had a reasonable expectation and belief that they would not have to make additional payments on their federal student loans,” Quall said. “That belief may well prevent them from making payments even if the Department is unable to deliver debt relief.”

“Unless the Department is allowed to provide one-time relief on student loan debt,” he continued, “we expect this group of borrowers to experience higher rates of loan default due to continued confusion about what they owe.”

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