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On July 8, 2021, US President Joe Biden addresses from the East Room of the White House in Washington, DC. [+] – (AFP photo by SAUL LOEB) (Photo courtesy of SAUL LOEB/AFP/Getty Images)
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Student loan borrowers anticipating that President Biden will prolong the existing student loan payment moratorium have recently received a significant boost.
Last year, Congress passed the CARES Act, which temporarily halted all payments and froze all interest on government-held federal student loans in response to the pandemic and recession. All collection actions on delinquent federal student loans were likewise halted by the measure. The student loan payment moratorium was meant to last six months at first, but it has been extended multiple times since then. The current extension of President Biden’s embargo is expected to expire on September 30, 2021.
Several recent developments imply that the student loan payment suspension may now be prolonged through 2022.
The Pennsylvania Higher Education Assistance Authority (PHEAA), which runs FedLoan Serving, one of the key student loan servicers for the US Department of Education, said yesterday that it will stop servicing federal student loans later this year. The Department’s contract with FedLoan Servicing expires on December 14, 2021. It will not seek a contract extension or renewal in the future.
Borrowers of student loans will suffer substantial consequences as a result of this. 8.5 million borrower accounts will need to be transferred to various student loan servicing providers, which is a time-consuming procedure that can result in lost records, missed payments, surprise late fees, and inaccurate credit reporting for borrowers.
The student loan payment halt, which ends only six weeks before FedLoan Servicing’s contract expires, will exacerbate these issues and cause even more uncertainty and hardship for borrowers when their student loans start payments. Student loan advocacy groups were previously afraid that student loan servicers would be overloaded and unable to handle millions of borrower accounts commencing repayment at the same time, an unprecedented event. With 8.5 million student loan account transfers thrown into the equation, the consequences for borrowers might be disastrous.
Millions of borrowers may not be able to start repaying their student loans this autumn. According to a poll performed by Student Debt Crisis and Savi, 90% of student loan debtors are not prepared to begin repaying their loans once the moratorium expires in September.
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Furthermore, with the Covid-19 Delta form spreading across the country, the pandemic may not be slowing down enough for student loan payments to be resumed. The Biden administration has previously stated that depending on the status of the epidemic, a further extension of the student loan suspension would be feasible. Secretary of Education Miguel Cardona remarked at a public event in May, “We’re taking a look at it. Obviously, we’ll always follow the data and assess where we stand as a country in terms of pandemic recovery. It’s possible that [another extension] will be granted.”
Key officials at the US Department of Education, according to POLITICO, are in favor of extending the moratorium on student loan payments until at least January 2022. These officials appear to be siding with a broad coalition of consumer rights organizations and progressive members of Congress who have urged the Biden administration to extend the student loan moratorium so that more time can be spent fixing and addressing key student loan programs that have been mired in administrative and bureaucratic problems for years.
Senator Elizabeth Warren (D-MA) tweeted last week, “The hold on student loan payments has been a big comfort for families, but it ends in 100 days.” “We’re encouraging President Biden to extend it for at least another 6 months to allow [the United States Department of Education] more time to prepare, as well as borrowers and our economy.”
In a letter to President Biden, Warren, Senate Majority Leader Chuck Schumer (D-NY), and Representatives Ayanna Pressley of Massachusetts and Joe Courtney of Connecticut urged him to prolong the ban. “Resuming payments… will be a tremendous burden for consumers, loan servicers, and the Department of Education,” the officials wrote. “We encourage you not to allow the payment pause expire while borrowers are still relying on this financial help.” They urged that, depending on the status of the economy, Biden should prolong the ban until March 31, 2022 or longer.
In a letter to President Biden in March, advocacy groups reiterated these thoughts. “There is broad agreement among borrowers, advocates, industry, regulators, enforcement officials, and lawmakers of both parties that rushing to resume student loan payments is a recipe for disaster, absent significant structural reforms and real, immediate relief, such as debt cancellation, for borrowers trapped in this broken system.” The Biden administration has not announced explicitly whether or not a second extension will be granted, nor has there been any hint of a likely announcement date.
There’s also no word on whether the Biden administration will pursue a large student loan forgiveness program. President Biden has asked his staff to conduct a formal legal assessment of authorities that could be used to eliminate student loan debt through executive action. That investigation is still ongoing.
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