Servicers Unsure As End of Student Loan Pause Looms

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The federal government’s pandemic-era pause on student loan payments expires at the end of September, but the agencies in charge of getting the system flowing again after 18 months off are still unsure how they’ll handle the task.

Key Takeaways

  • A pandemic-era pause on federal student loan payments and interest expires Sept. 30.
  • When relief lapses in 11 weeks, 30 million borrowers will simultaneously be back on the hook for their regular loan payments.
  • In May, Education Department secretary Miguel Cardona said an extension was “not out of the question.” Since then, there has been growing pressure on President Joe Biden to extend the pause until 2022.
  • The agencies responsible for collecting and processing borrowers’ payments expressed frustration about the preparations for restarting the student loan system, particularly with an extension possible.

Some federal loan servicers, the agencies responsible for processing payments, have expressed doubt about how they’ll pull off the “unprecedented” task of transitioning 30 million student loan borrowers back into repayment on Oct. 1, according to letters sent to Sen. Elizabeth Warren and Sen. Ed Markey and released by the Massachusetts Democrats on Wednesday. Uncertainty about whether the government might extend the deadline further added to the confusion.

Payments and interest on federal student loans have been paused since March 2020 as part of the government’s pandemic relief effort. In May, Education Department secretary Miguel Cardona told a group of education reporters that extending the pause was “not out of the question.” But the government has been proceeding as if the relief programs will expire as scheduled Sept. 30. Still, servicers expressed confusion about when they should begin the process of hiring more workers and communicating with borrowers in preparation for the restart.

“At the time of writing this letter, we understand that there is a substantial likelihood that the return to repayment date of October 1, 2021 will be extended,” wrote William Anthony Hollin, CEO of EdFinancial Services, on July 1. “The final date for return to repayment is a critical factor in the timing of some of our preparation efforts, as we want to avoid any confusion for borrowers to the extent possible in our communications with them.”

Warren and Markey included the information from the servicers, requested by the lawmakers last month, in a letter sent to President Joe Biden on Tuesday. In the letter, Warren and Markey call on Biden to extend the student loan pause six months beyond its current Sept. 30 expiration date, to March 31, 2022.

The Biden administration has been under growing pressure in recent weeks to give student loan borrowers more time. Warren previously joined a larger group of lawmakers, including Sen. Chuck Schumer (D-New York), who asked Biden in mid-June to extend the pause to the end of March. A group of 128 organizations sent a letter in late June imploring Biden to pause payments indefinitely until his administration could fulfill a campaign promise to cancel $10,000 of debt for every federal student loan borrower. A week later, Sen. Patty Murray (D-Washington) and Rep. Bobby Scott (D-Virginia) sent a letter to the president, requesting he extend the pause on payments and interest until early 2022. 

In all, 42.9 million borrowers have $1.6 trillion in federal student debt. Among the benefits of a longer pause, the lawmakers said, is more opportunity for borrowers to pay down their debt without interest. Nearly 2.5 million student loans have been fully repaid during the payment pause so far, according to data provided by five of the loan servicers. And each month interest on student loans is paused, federal borrowers save a combined $5 billion.

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