7 million student-loan borrowers who fell behind on payments just got a 'fresh start' and will return to good standing, Biden's Education Department says

• Biden extended the pause on student-loan payments a fourth time, through August 31.
• He also announced defaulted borrowers would get a "fresh start" and return to good standing.

Not only did President Joe Biden give student-loan borrowers four additional months of relief — he is also returning millions of borrowers who are behind on payments to good standing.

On Wednesday, Biden and the Education Department announced a fourth extension of the pause on student-loan payments through August 31, citing the hardship Americans are continuing to face amid the ongoing pandemic. A critical piece of that announcement included a plan to give borrowers that were behind on payments — either in delinquency or default — a "fresh start" by returning them to good standing when they reenter repayment.

"It remains a top priority for the Biden-Harris Administration to support students, families, and borrowers – especially those disproportionately impacted by the pandemic," Education Secretary Miguel Cardona said in a statement. "During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs."

Politico first reported back in October that Biden was considering bringing the 7 million borrowers in default back to good standing when payments were set to resume in February. Wednesday's announcement did not provide a timeline for when those borrowers will see their accounts updated, but it will ensure those behind on payments will no longer suffer the consequences of wage garnishment and seizure of critical benefits, like Social Security.

"For too long, defaulted borrowers have slipped through the cracks and been made to suffer at the hands of the Department of Education's punitive collection system, which forces them to forgo their wages, social security benefits, and Earned Income Tax Credits in retaliation for defaulting on their federal loans," Student Borrower Protection Center Policy Director Persis Yu said in a statement. "We applaud the Biden Administration's decision to pull millions of borrowers out of default and to give them a fresh start."

Leading up to the expected payment restart date in May, lawmakers and advocates were sounding the alarm on risks of millions of borrowers falling behind on payments. Insider reported last month that 7.8 million borrowers were at "high-risk" of being unable to pay in May, according to the California Policy Lab and the Student Loan Law Initiative, and the Education Department itself signaled "great uncertainty" with what would happen should borrowers be forced into repayment.

The Government Accountability Office also reported in January that 50% of borrowers were at-risk of delinquency if Biden adhered to the May payment restart date, and it said the department planned to improve communications and outreach measures to make those borrowers aware of their repayment options.

While Wednesday's announcement was welcome news for many, though, lawmakers still want Biden to do more. New Jersey Sen. Bob Menendez said in a statement that Biden should extend the pause beyond August 31 to "fix longstanding issues" with loan repayment and forgiveness programs, and a group of Democrats, including Sens. Elizabeth Warren, Chuck Schumer, and Rep. Ayanna Pressley urged Biden to take his action a step further and cancel student debt.

"While the extension is welcome, a looming restart of student loan payments in September underscores the importance of swift executive action on meaningful student debt cancellation," they said "We continue to implore the President to use his clear legal authority to cancel student debt, which will help narrow the racial wealth gap, boost our economic recovery, and demonstrate that this government is fighting for the people."