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Pressure Mounting to Extend Loan Repayment Pause

By Owen Daugherty, NASFAA Staff Reporter

A slew of top Democrats from both chambers of Congress are increasingly pushing President Joe Biden and leadership at the Department of Education (ED) to issue another extension of the pause on student loan payments and interest accrual, arguing that student loan servicers need more time to communicate with borrowers.

Currently, the emergency forbearance for federal student loans put in place at the start of the coronavirus pandemic, and extended three times, is set to expire on September 30. But advocates and lawmakers are hopeful that a fourth extension is coming in the near future.

“With student loan and interest payments scheduled to resume on October 1, 2021, and a wave of loan delinquencies and defaults likely to follow, we are concerned about the Department resuming these payment collections and are seeking information about how ED plans to avoid long-term financial harm to borrowers,” Sen. Elizabeth Warren (D-Mass.), along with Sen. Cory Booker (D-N.J.) and Rep. Ayanna Pressley (D-Mass.), wrote in a letter sent to Education Secretary Miguel Cardona Wednesday. 

Lawmakers are concerned a restart in payments without enough time for servicers to contact borrowers could result in a spike in delinquencies and defaults.  

Further, with debt collection restarting after the payment pause comes to an end, defaulted borrowers could have their tax refunds or their Social Security payments garnished, leading lawmakers to press Cardona for details on how ED plans to support these borrowers in default.

That letter was preceded by another one from Warren and Sen. Ed Markey (D-Mass.) sent to Biden on Tuesday urging the White House to extend the current pause on payments and interest until at least March 31, 2022.

The pressure campaign on the White House is not just coming from lawmakers. Politico reports top officials at ED are also urging Biden to extend the relief to borrowers one more time, through at least January 2022.

While Cardona and Biden have been mum on whether or not they will issue another extension, Cardona recently said it was an issue that ED is looking into and having ongoing discussions about.

“I recognize the challenge it has been for those who have debt, thinking about that date coming up soon,” Cardona said during a House Education and Labor Committee hearing.

Additionally, the recent announcement from the Pennsylvania Higher Education Assistance Agency (PHEAA) that it won’t seek to renew its contract with ED when it expires at the end of the year further complicates the matter for loan servicers proactively reaching out to borrowers.

PHEAA currently services federal student loans in the Direct Loan (DL) program as FedLoan Servicing and is the only servicer of the Public Service Loan Forgiveness (PSLF) program.

While Federal Student Aid (FSA) Chief Operating Officer Richard Cordray said FSA will work with PHEAA to develop a wind-down plan to facilitate a smooth transition for borrowers serviced by PHEAA, that transition is prompting questions from lawmakers.

“The process of transferring borrower accounts managed by PHEAA to another servicer introduces new possibilities for errors, which could compound existing inaccuracies, preventing deserving public servants from qualifying for loan forgiveness,” Warren and Markey wrote. “The last time the PSLF program was transferred from one servicer to another, inaccurate records of payment amounts and terms and mishandled records derailed thousands of borrowers from progress toward debt relief.”

Last month, Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), chairs of the Senate and House Education Committees, sent a letter to President Joe Biden urging him to extend the payment pause until early 2022, arguing that borrowers do not yet have the information and support they need to navigate resuming repayment.

Taken together, the concentrated push from lawmakers is leading many to speculate another extension is in the works that will give servicers more time to communicate with borrowers and unemployment rates to return to pre-pandemic levels.

“The Department should use this additional time to conduct a robust outreach campaign to ensure borrowers are aware of the upcoming return to repayment,” Murray and Scott wrote, adding that “extending the pause on student loan payments, interest, and collections is a critical step toward ensuring the Department can provide borrowers with an effective re-entry for repayment.”

 

Publication Date: 7/15/2021


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