Student-loan borrowers who fall behind on payments 'provide the most compelling evidence' the system needs 'fundamental change,' a top education official says

• Under Secretary of Education James Kvaal said consequences of defaulting on student loans are too severe.
• Defaulting "should not be a lifelong sentence of financial struggle and despair," he said.

The consequences of falling behind on a student-loan payment can be severe — and a top education official said it shows how broken the system is.

During a virtual event led by advocacy group Student Borrower Protection Center on Tuesday, Under Secretary of Education James Kvaal joined to speak on the issues that arise when student-loan borrowers default — or fall behind — on their debt payments. If a borrower cannot get out of default, they can be subjected to wage garnishment and seizure of federal benefits, like Social Security, and it can be a difficult cycle to escape.

"The consequences of default are so punitive, it's as if whoever designed these policies assumed that borrowers were somehow trying to beat the system. 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 said.

"By and large, borrowers who default on their loans are people who have been failed by the policies and lagging investments in college affordability," Kvaal added. "They provide the most compelling evidence that the student loan system needs fundamental change."

About 7 million student-loan borrowers are in default, and a report from the Government Accountability Office in January found that 50% of federal borrowers were "at-risk" of falling behind when payments, which have been paused for the duration of the pandemic, resume. To combat that risk, when the Education Department extended the pause on payments a fourth time through August 31, it also announced a plan to restore all defaulted borrowers to good standing before they would have to reenter repayment.

Details of how that will happen have not yet been announced, though, and there is speculation the pause might be extended once again after the department instructed student-loan companies to halt messaging to borrowers surrounding the payment restart. President Joe Biden is also expected to announce a decision on broad student-loan forgiveness by the end of August, but with the month nearly halfway done, borrowers are continuing to wait for updates.

While the department is looking for ways to help defaulted borrowers, though, many still fear they will not be able to afford payments without a payment pause extension and debt cancellation. Insider previously spoke to Robin O'Brien, a 61-year-old with $64,000 in student debt who can barely afford her medical bills from long COVID and doesn't know how she will manage the extra expense once student-loan payments resume.

"I don't know how I'm going to afford it," O'Brien said. "I just don't think it's something I can afford."

Kvaal recognizes that struggle and said he will work to get relief to as many qualifying borrowers as possible.

"There are lives at stake here," he said, adding that "defaulting on a student loan should not be a lifelong sentence of financial struggle and despair."