With 45 million borrowers owing it a total of $1.6 trillion, the federal Education Department is effectively America’s largest consumer bank. And like any bank, it sees some of its loans go bad when borrowers can’t pay, the New York Times reported. But unlike any other lender, the federal government keeps those bad debts around in perpetuity. There is no simple way for the department to write off those loans, and student debt is nearly impossible to shed in bankruptcy. Over the years, it has piled up into an enormous problem: More than seven million people, one of every five borrowers with payments due, have defaulted and failed to pay, sometimes for decades. Those borrowers live under the shadow of punitive collections tactics, while the government throws good money after bad. Now the freeze on student loans that started early in the pandemic is giving the government its best shot in a generation to address the problem. Before the pause ends, the Biden administration plans to offer defaulted borrowers the chance to restore their loans to good standing. That will allow those borrowers to get into payment plans they may actually be able to afford. Advocates view the novel move as a way to deal with very stale debts — especially if it’s paired with the kind of large-scale loan forgiveness that President Biden says he is considering. Should Mr. Biden use an executive action to forgive $10,000 per borrower in student debt, he would wipe out the balances of more than 4.6 million people who were behind on their payments before the pandemic, according to Education Department data sent to Congress last year.
