Student loan borrowers gather near The White House to tell President Biden to cancel student debt on May 12, 2020.
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Student loan default rates could dramatically spike if the Biden administration’s loan forgiveness plan is blocked, a top official for the U.S. Department of Education said in a new court filing.
The warning came as the Department of Justice asked a federal judge in Texas to stay an order that has temporarily blocked the Biden administration’s debt relief program.
“Unless the [Education] Department is allowed to provide debt relief, we anticipate there could be an historically large increase in the amount of federal student loan delinquency and defaults as a result of the COVID-19 pandemic,” Education Department Under Secretary James Kvaal said in the filing.
“This could result in one of the harms that the one-time student loan debt relief program was intended to avoid.”
The Biden administration stopped accepting applications for its 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 plagued with problems before Covid
Even before the pandemic, when the U.S. economy was enjoying one of its healthiest periods in history, problems plagued the federal student loan system.
Only about half of borrowers were in repayment in 2019, according to an estimate by higher education expert Mark Kantrowitz. About 25% — or more than 10 million people — were in delinquency or default, and the rest had applied for temporary relief for struggling borrowers, including deferments or forbearances.
These grim figures led to comparisons to the 2008 mortgage crisis.
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