Bad student loans will not go away

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 cannot pay.

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 7 million people, 1 of every 5 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.

Advocates view the novel move as a way to deal with very stale debts — especially if it is paired with the kind of largescale loan forgiveness that President Joe Biden says he is considering. Should 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.