FSA Expecting Heavy Burden in Transitioning Borrowers Back Into Repayment, Annual Report Shows

By Owen Daugherty, NASFAA Staff Reporter

Federal Student Aid (FSA) and its loan servicers will face a significant burden in attempting to convert millions of borrowers back into repayment all at the same time once the automatic forbearance period comes to a close at the end of the year, according to FSA’s annual report.

As the borrowers are converted to repayment, “a certain portion” of them will become delinquent initially, FSA noted in the report. Borrowers have already begun receiving text and email notifications letting them know that their monthly payments will resume in January.

The report published this week highlights FSA’s standing and activity throughout a year dominated by the ongoing pandemic, with virtually all quarterly figures contained in the report impacted by actions the Department of Education (ED) and FSA took to respond to the coronavirus. 

FSA Chief Operating Officer Mark Brown praised his office's efforts in responding to the obstacles created by the coronavirus, saying it was able to fulfill its mission “even as we addressed the challenges” brought by the global pandemic.

“Working closely with our federal student loan partners, we made sure student loan servicers were compliant with the [CARES Act] student loan relief provisions,” Brown stated.

Both Brown and the report presented the pandemic as an opportunity for FSA to adapt and evolve, touting the workforce’s transition to fully remote work and ability to maintain its services and communication with institutions and students.

Unsurprisingly, the report shows a considerable drop in the dollars ED collected from federal student loans over the past fiscal year, down more than $20 billion compared to last year.

Borrowers with federally-held student loans automatically entered a payment and interest forbearance period through a provision in the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was then extended through December 31 by an executive order signed by President Donald Trump. Borrowers who wished to continue making payments have been able to do so during this time.

It is still possible the payment relief will be extended again before the end of the year either through executive action or in legislation as part of a federal coronavirus response package. Alternatively, President-elect Joe Biden could move to extend relief to borrowers through executive action once he enters the White House, though that would come nearly three weeks after payments are set to resume.

More than 41 million borrowers had their interest rate adjusted to 0% and their payments suspended under the CARES Act, according to the report. Still, 4.6 million borrowers opted to continue making payments during the forbearance period and as of the report’s publication, 23.8 million borrowers are taking advantage of the payment suspension period.

In a quarterly report published in September that provided the first glimpse of borrower behavior amid the pandemic, only about 300,000 Direct Loan borrowers had loans in a repayment status as of June 30, 2020, compared with the nearly 19 million borrowers who were in a repayment status at the same point one year prior.

Of FSA’s more than $1.3 trillion Direct Loan portfolio, only about $146 billion is currently in repayment, making up roughly 11% of the total direct loan portfolio — significantly less than the $820.1 billion, or about 65%, as of Sept. 30, 2019.

As for the cost of deferrals from the payment relief borrowers were afforded, the report estimated that the initial relief under the CARES Act amounted to $27 billion and the extended relief through Trump’s executive order resulted in $14.6 billion in deferrals.

FSA’s total federal aid delivered to borrowers in the 2020 fiscal year was the lowest of the last five years at just over $115 billion, likely due to declines in enrollment this summer and fall as students navigated the pandemic.

Aid to students in the form of federal loans, federal grants, and through the Federal Work-Study program were all down by more than 5% compared to last year. 

Looking forward, as FSA seeks to publish and implement its five-year strategic plan, it said it would be expanding the use of its virtual assistant, continuing to enhance the functionality and user friendliness of its StudentAid.gov website, improving the Public Service Loan Forgiveness Help Tool to assist borrowers with updated information about qualifying employers, and modernizing its systems, among other priorities.


Publication Date: 11/19/2020

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