By Owen Daugherty, NASFAA Staff Reporter
The Department of Education (ED) will face significant challenges in restarting payments for tens of millions of borrowers with federal student loans after a more than two-year hiatus, chief among them how to communicate with borrowers and raise awareness that payments are resuming.
Student loan repayment was one of several pressing issues detailed in a new report from the Government Accountability Office (GAO). ED in December announced another extension of the pause on student loan payments and interest accrual through May 1 amid a surge in coronavirus cases and concern that borrowers were not prepared for payments to resume.
Department officials told GAO that the recent extension will “allow the administration to assess the impacts of the Omicron variant of the virus on student borrowers and provide additional time for borrowers to plan for the resumption of payments and reduce the risk of delinquency and defaults after payments resume.”
However, with the lengthy pause comes a logistical headache to communicate with borrowers about the status of their loans, especially after several extensions have further complicated ED’s attempts to return borrowers to repayment.
ED acknowledged as much, telling GAO that they “expect it will still be a challenge to motivate borrowers to resume repaying their loans after over two years of payment inactivity.”
For the first time on record, ED officials said they would assist borrowers easing into the transition by not reporting missed payments to credit reporting agencies. Additionally, the department will allow borrowers to self-certify their income to apply for or stay enrolled in income-driven repayment plans.
Notably, the GAO report found that about half of borrowers with federal loans were identified as at-risk of falling into delinquent status on their loans when monthly repayments resume, according to data ED gathered from student loan servicers in October.
ED defined at-risk borrowers as those who had not graduated and entered repayment in the last 60 months; those who had entered repayment for the first time in the past 36 months; those who had exited hardship, unemployment, or natural disaster deferment or forbearance in the last 48 months; or borrowers who were ever 90 days delinquent or more in the year before the payment pause began.
An example of the situation ED will be dealing with comes from student loan servicer Maximus, the servicer tasked with managing the accounts of borrowers with defaulted loans. The GAO report notes initially the servicer didn’t have valid email addresses for roughly half of the borrowers in default and even after ED provided additional email addresses drawn from various data sources, email addresses for about 25% of defaulted borrowers are still missing.
ED “is planning to reach these borrowers by using other outreach channels to share messages about rehabilitation options,” the report adds. ED said it will post on social media detailing options for borrowers to rehabilitate their defaulted loan rehabilitation, in addition to resources borrowers should know, and potential consequences if borrowers don’t enroll in a rehabilitation plan.
An additional layer of confusion could come from the servicer turnover that has taken place in the past year. In total, servicer departures and transitions within the last 12 months mean more than 12 million borrowers could be under new servicers by the time payments resume, leading many to worry about borrower confusion.
ED completed the transfer of all student loan accounts from the New Hampshire Higher Education Association Foundation (NHHEAF), which operates as Granite State Management & Resources, in November, and from Navient in December. As of January, ED had transferred 37% of student loan accounts from FedLoan Servicing, and is expecting to complete all transfers by the summer, according to the report.
GAO also raised concerns regarding whether the student loan servicers had sufficient staffing to handle the influx of requests that will come from borrowers in the coming months. The report noted that servicers need to have trained staff in place to be prepared to cover extended call center hours and for expected higher call volumes, as borrowers seek information about their loans.
Each student loan servicer indicated in the report that they needed to increase hiring to prepare for and oversee borrower loan repayment. Additionally, all seven servicers reported back in October when it was expected that payments would resume in February that they were increasing hiring to prepare for resuming repayment, but indicated servicers in total still needed to hire more than 4,500 employees to meet targets.
Notably, two servicers said the influx of new hires may contribute to negative customer service experiences, as these staff may not have the experience to answer all questions that may arise from resumption of payments — an unprecedented scenario for servicers and borrowers alike.
“Despite these challenges, all seven servicers reported that they will have adequate time to hire and train the staff needed before the payment suspension ends,” the report concludes.
Further, ED officials told GAO that they do not have any immediate concerns about their loan servicers’ current capacity or their ability to hire staff, and that they are closely monitoring servicer hiring, workload estimates, and performance.
Publication Date: 1/31/2022
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