Over 7 million Americans are in default on their federal student loans, and over 2 million of those borrowers have struggled under the weight of this debt for over 20 years, with no hope in sight. Many borrowers in default are simply unable to afford their loans, and continued collection efforts are doomed to fail—while inflicting needless economic pain on low-income Americans and their families. The government’s collection efforts, including seizures of poverty-level wages and Social Security benefits, interfere with many families’ ability to pay for necessities and keep them trapped in cycles of poverty. Further, although there are a variety of safety net programs intended to prevent default and to cancel the debts of certain distressed borrowers, many people eligible for those programs have nonetheless defaulted because the companies paid to service their loans failed to connect them to these programs, wrongly denied them access, or actually steered them away.
Fortunately, the U.S. Department of Education (ED) can choose to end this suffering. This paper starts by grounding readers in the consequences of student loan default, who is in default and why, and why so many borrowers remain in default for years. It then identifies legal authority, under existing regulations, that empowers the Secretary of Education to compromise student loan debts and so end collection from defaulted borrowers where such efforts would be futile or unreasonable. Now—before the suspension of federally-held student loan collection ends next year—is the time to act on that authority.
The paper was published in October 2023 as part of a larger series laying out a roadmap for action to protect borrowers eligible for debt relief from wrongful collection.