For much of the last two years, most federal student loans have been on pause. No payments have been due, no interest has been accruing, and collections activities on defaulted federal student loans have been halted.
The original student loan payment pause was established through the CARES Act – a massive stimulus bill passed by Congress in March of 2020 in response to the rapidly deteriorating economic and public health situation associated with the Covid-19 pandemic. Lawmakers originally envisioned a six-month pause on student loan payments, but that relief was subsequently extended and expanded by former President Trump and then President Biden using executive action.
Biden’s most recent extension of the student loan payment moratorium is set to end on January 31, 2022 — 60 days from now. Here’s what borrowers should know.
Student Loan Payment Pause Ends In 60 Days
The national moratorium on student loan payments, interest, and collections will end in just two months. So far, all signs indicate that the pause will not be further extended, despite prior statements from Biden administration officials suggesting that the Department of Education would take into account economic and pandemic-related conditions.
Surveys suggest that many borrowers are not ready for payments to resume again. In a nationwide survey of thousands of student loan borrowers, Savi and the Student Debt Crisis Center found that 89% of borrowers are not financially ready to restart repayment. Most respondents also said that the payment pause has been critical to their financial well-being, and that this relief made it possible to afford other bills during the pandemic. Over a quarter (27%) of respondents say that one-third of their income or more will go toward student loans when payments resume. 10% say that half of their income will go toward student loan payments.
But so far, the Biden administration appears to be moving forward with the resumption of repayment.
Student Loan Servicing Changes Occurring As The Payment Pause Ends
The Education Department has announced several upcoming changes to student loan servicing that could impact borrowers as they return to repayment. Here’s the latest:
- Education Department officials approved Navient’s proposal to transfer its Department of Education federal student loan accounts to another company called Maximus
. Maximus is another contractor for the Department that has primarily handled its portfolio of defaulted federal student loans. Maximus will be operating as “Aidvantage.” In an earlier statement, Navient indicated that the transfers to Aidvantage should be completed by the time repayment resumes in February.
- FedLoan Servicing, the Department of Education wing of the Pennsylvania Higher Education Assistance Authority (PHEAA), also announced that it will be withdrawing from the Department’s federal loan servicing system. FedLoan is the primary contractor handling the troubled Public Service Loan Forgiveness (PSLF) program. While FedLoan was originally supposed to wind down its operations by the end of this year, and some borrowers have already had their student loans transferred from FedLoan to other servicers, the Biden administration has extended FedLoan’s contract by another year. As a result, most borrowers with FedLoan will see no servicing changes until after repayment resumes in February.
- The Education Department has agreed to a two-year extension of servicing contracts with several of its other federal student loan servicing contractors including Great Lakes Higher Education, Edfinancial, MOHELA, and Nelnet. Borrowers with loans handled by these companies should not see any servicing changes in the near-term.
Advocates Push For Student Loan Forgiveness
As borrowers get closer to getting billed again for their student loans, advocates continue to push the Biden administration to enact widespread student loan forgiveness.
“Today would be a great day to cancel at least $50,000 of student loan debt per borrower” tweeted Rep. Pramila Jayapal (D-WA), chair of the House Progressive Caucus, earlier today. Advocacy groups and progressives in Congress have been urging President Biden to cancel $50,000 or more in student loan debt for every borrower. Biden supported broad student debt cancellation during his 2020 presidential campaign, but he has opposed larger amounts of student loan forgiveness, and he has questioned whether he has legal authority to act without Congress.
“Nearly 90% of student loan borrowers aren’t ready for payments to restart. It’s time for [President Biden] to use his existing authority to #CancelStudentDebt,” said Sen. Elizabeth Warren (D-MA), a leading advocate of widespread student loan cancellation, in a tweet last week. “Lifting the burden of debt will help families and jumpstart our economy. It\’s the right thing to do.”
The Biden administration has enacted billions in “targeted” student loan forgiveness by expanding and streamlining existing federal student loan forgiveness programs, such as through Public Service Loan Forgiveness. But the total amount forgiven so far — estimated by the Department to be around $11.5 billion — barely puts a dent in the $1.8 trillion in outstanding student loan debt.
Last spring, the Biden administration promised to release a legal memo outlining the potential authority Biden would have to enact broad student loan forgiveness through executive action. That memo was never officially released, but student debt activists were able to obtain a heavily redacted version through a Freedom Of Information Act request. The redacted memo does not provide any conclusive insight into whether the Biden administration will implement mass student loan forgiveness, and so far, no Biden administration officials are suggesting that broad cancellation of student loan debt is imminent.
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