The only good thing that happens when an individual defaults on his or her student loan is that debt collectors make money, according to an Undersecretary at the Department of Education who was speaking during a virtual panel discussion earlier this week. Defaults do nothing more than “drive borrowers who are already facing financial hardships into an even deeper hole,” said Undersecretary James Kvaal during the discussion, according to a published report.
The system seems to have been set up to assume that people who do not pay their student loans “are somehow trying to beat the system,” Kvaal said. “Defaulting on your student loan is about the farthest thing from a get-rich-quick scheme. It’s more like a stay-in-debt-forever scheme.”
Kvaal’s remarks come less than three weeks before a moratorium on student loan payments is set to expire, having been put in place more than two years ago at the start of the COVID-19 pandemic. Many are calling on the Biden Administration to extend the pause while others continue to call for the cancellation of some or all of outstanding student loans.
About one-sixth of all individuals with outstanding student loans were in default prior to the pandemic, according to Kvaal, equating to about 7.5 million people. Once payments are restarted, everyone will have their loans put back in good standing, regardless of their status at the time the pause was put into place.
The current system of collection — allowing for wage garnishments and the withholding of tax refunds — is too punitive and preventing people from ever getting back on their feet, Kvaal said. “Even if you were a hard-nosed accountant who only cared about collecting money for taxpayers, it makes no sense to try and collect a loan by driving borrowers into poverty,” he said.
