US Plans to Stop Weighing Medical Debt in Federal Loan Approvals

US agencies that lend hundreds of millions of dollars a year to individuals and small businesses must develop plans for how they will disregard medical debt in assessing loan eligibility, under a Thursday directive from the White House’s budget office.

The directive, signed by Budget Director Shalanda Young, is part of the Biden administration’s push to help Americans saddled with medical debt receive more favorable terms on loans, including those to buy a home. Half of insured Americans owe medical debt, a February survey of 1,250 US adults found.

That burden disproportionately falls on Black Americans. Census data show that 28% of Black households have medical debt, compared with 17% of White households.

“This debt is an anchor that weighs down families, the economy, and the country,” Young said in the directive.

The US government lends money to buy homes, build family farms, and set up small businesses that are not able to get financing from other resources. Young’s directive calls on agencies to submit plans in September on how they will disregard medical debt when determining creditworthiness.

The directive follows up on the administration’s announcement in April that the Department of Veterans Affairs would stop reporting debt that veterans owe the agency for their health coverage to credit reporting agencies. Separately, reporting agencies Equifax Inc, Experian Plc, and TransUnion in March said they would remove more than 70% of existing medical debt entries from credit reports.

The Consumer Financial Protection Bureau said in a March 1 report that around $88 billion in uncollected medical debt was reported to credit bureaus, making up some 58% of all uncollected debt on US consumers’ credit reports.