Biden administration warns of spike in delinquencies without student loan forgiveness

Nov. 16 (UPI) -- The Biden administration is warning of a major wave of delinquencies if his student loan forgiveness policy is not carried out.

U.S. Under Secretary of Education James Kvaal filed a stay of judgment order with a federal court in Texas Tuesday, warning the court of the negative ramifications if the loan forgiveness plan remains blocked. Judge Mark Pittman of the U.S. District Court of Northern Texas blocked the plan Monday with an injunction, stopping it in its tracks.

In a filing with the court, Kvaal said stopping the student loan forgiveness plan will cause "significant financial harm to these approximately 40 million student loan borrowers." He noted that 16 million borrowers already had their applications approved since the application period opened on Oct. 17.

The U.S. Department of Education has received about 26 million applications so far but stopped accepting applications after Pittman issued the injunction.

"Unless the 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," Kvaal wrote. "This could result in one of the harms that the one-time student loan debt relief program was intended to avoid."

In the past after natural disasters, default rates increased "twentyfold," Kvaal said, even with efforts from the department to provide relief to borrowers.

Kvaal painted a scenario for what repayment looks like for different types of average borrowers with and without forgiveness. For a borrower with five years left on their 10-year repayment plan and a balance of $29,400, their payments would be increased by $200 or more than if they had $10,000 or $20,000 forgiven under the program.

Kvaal also described how severe the consequences of defaulting on a student loan are, including having wages garnished, being unable to purchase a home and struggling to get back into good standing. Those most affected by defaulting would be the lower-income borrowers who would be eligible for the forgiveness plan. Particularly Pell Grant recipients who would have $20,000 in debt forgiven.

About 18 million borrowers would have their entire student loan balance eliminated under the forgiveness plan, Kvaal estimates.

Department of Education Secretary Miguel Cardona said the administration will continue to fight "for the millions of hardworking students and borrowers across the country."

"We believe strongly that the Biden-Harris Student Debt Relief Plan is lawful and necessary to give borrowers and working families breathing room as they recover from the pandemic and to ensure they succeed when repayment restarts," he said.