Three Solutions to Help Defaulted Borrowers Under the CARES Act Provisions

Almost all Federally-held defaulted student loan borrowers received tremendous support through the CARES Act. The measures enacted by the Congress included payment suspension, Treasury Offset, Wage Garnishment, and all outbound collection activity until at least September 30, 2020. This is absolutely the right thing to do and this has been done routinely for areas under disaster declarations over the years.

However, Congressional intent is unclear in the CARES Act on how the Education Department might help borrowers other than placing them in suspended animation. Here are three recommendations that will help borrowers over the loan lifecycle immediately and in my estimate, the Department can resolve defaults for over 40 percent or 5 million borrowers by September 30.

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First, the Secretary should allow all defaulted borrowers who are currently enrolled in a voluntary repayment program for loan rehabilitation to complete the program if they have made one or more payments towards eligibility before March 31, 2020.

Second, the Secretary should allow all borrowers who have had their wages garnished at any time between February 2019 to February 2020 to rehabilitate their student loans, and consider the wage garnishment payments withheld thus far as the qualifying payments.

Third, the Secretary should allow all borrowers to enter into loan rehabilitation at any time before September 30, 2020, without any qualifying payments between April 1, 2020, and September 30, 2020.

The Secretary can announce this amnesty program and use the Department’s public relations office, press releases, and direct emails to defaulted borrowers to have them contact their servicer. This amnesty program will allow defaulted borrowers to remove the default status, pay less in interest and collection costs, improve their credit, never have another wage garnishment or Treasury Offset. And their accounts will be handled by a Federal Servicer beginning immediately after rehabilitation is completed and they will be placed in a forbearance like other non-defaulted borrowers.

The Secretary is in a unique position to help defaulted borrowers today, more than at any other time. Unless all these loans are forgiven at taxpayer expense, doing nothing is not an option. In fact, banks and credit card companies, debt buyers and private student loan companies could offer similar, well-thought-out repayment programs for consumers now and create financial wellness for all Americans. The Education Department could set the leadership to show how delinquent and defaulted borrowers still want to make good on their obligation with a little help from their lenders.

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Balaji “Raj” Rajan is the CEO of Ceannate Corp group of companies focused on the student lifecycle – from K-12 to post-secondary education. The Ceannate companies focus on improving access and affordability to student mental health and financial well-being around student debt including collections, Income Share Agreement servicing, and delinquency prevention. Raj has extensive experience with Federal Student Aid program, having been a prime contractor for over 16 years and advocates for the benefits and alignment of government credit programs for all stakeholders.