- 23 Democrats asked the Education Dept. how it will protect borrowers' wages when student-loan payments resume.
- They cited how nearly half of borrowers with defaulted loans can't return to good credit standing.
- Democrats are worried about "plunging" the borrowers back into repayment in October without long-term help.
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Even if the pause on student-loan payments does get extended past October, it would only be temporary. Lawmakers want to ensure the Education Department has plans for long-term borrower protections.
On Wednesday, Sen. Elizabeth Warren of Massachusetts, Sen. Cory Booker of New Jersey, and Rep. Ayanna Pressley of Massachusetts led 23 of their Democratic colleagues in requesting information from the Education Department on practices that "harm student borrowers." Specifically, in their letter to Education Secretary Miguel Cardona, the lawmakers wanted to know the steps the department is taking to protect borrowers' wages and benefits when payments resume.
"Even before the coronavirus disease 2019 (COVID-19) pandemic, collections on defaulted student loans were catastrophic for borrowers in default, who saw their wages, tax refunds, and even Social Security checks confiscated, in addition to being forced to pay exorbitant fees," the Democrats wrote.
The letter cited a report from the Center for American Progress that found 45% of borrowers in default have not found a path to return their loan to good credit standing, which makes housing and job opportunities more difficult to land.
Democrats added that although the CARES Act initially paused student-loan payments during the pandemic, the Education Department and Treasury Department still "improperly garnished and withheld" over $200 million from about 390,000 borrowers during this time.
"The Department's failure to fully implement the collections moratorium raises concerns about how it will handle the upcoming scheduled resumption of collections and payments on October 1, 2021," the letter said.
The Education Department also said it would refund any wage or tax refunds collected after the pandemic began, but over 23,000 borrowers who had their wages garnished have yet to receive refunds because the department didn't have borrowers' correct addresses on file, according to the National Consumer Law Center, which is why the Democrats are stressing the importance of proper preparation to transition into student-loan repayment.
Many Democrats who have signed this letter are also calling for the payment pause to be extended through at least March of next year, given that both borrowers and services have said they are not prepared to resume payments in just a few months.
The lawmakers wrote: "As we near the currently scheduled end of the suspension of payments and collections, we are concerned about plunging borrowers back into an untenable financial situation, causing long-term damage to their credit and financial stability and a sudden unnecessary drag on our recovering economy."