By Owen Daugherty, NASFAA Staff Reporter
With just four weeks left until federal student loan payments are set to resume, borrowers trying to decipher what will happen next with their loans probably won’t find any help by reading news headlines.
Seemingly every day there is either an advocacy group or set of Democratic lawmakers pushing for another extension, or a private lender or group of Republicans urging the Biden administration to have payments resume.
Last month alone, leading Democrats pressed the White House to issue another extension of the pause on federally-held student loan payments and interest accrual through 2023, while SoFi, one of the largest student refinance companies, urged President Joe Biden to have payments resume May 2 when the current pause is set to expire.
The mounting pressure from virtually all sides could leave any borrower confused and unsure of what to prepare for in the coming months, said Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit that helps student loan borrowers with free advice and dispute resolution.
“One of the biggest mistakes that we continue to make in the student loan industry is assuming that every borrower is the same, and that’s so far from the truth,” she said. “You can have two different borrowers with the same degree from the same school that make the same salary or the same amount of money. And you're going to need to counsel them in completely different ways because there are so many other variables out there that impact the affordability of their student loan debt.”
Communication to borrowers has been one of the focal points of the Biden administration during the two years payments have been paused, as several planned resumptions have been halted by additional extensions.
“We’ve never had 40 million borrowers enter repayment simultaneously and the need for targeted borrower communications cannot be understated,” said Karen McCarthy, NASFAA’s vice president of public policy and federal relations. “It’s especially important that loan servicers conduct intensive outreach to borrowers who exhibited signs of struggle before the repayment pause.”
With the administration reportedly telling student loan servicers to not send communications to borrowers that their student loan payments would be restarting just weeks ahead of the scheduled resumption of payments, it's looking more likely that another extension will be announced.
“I've been saying it's probably 80/20 in favor of there being an extension, and the bigger question at this point is how long is that extension going to be,” Mayotte said. “Borrowers are still preparing for May 1, which I don't think is a bad thing if there wasn't an extension. It's more likely that if they do another extension, it'll probably run through November.”
Further, due to the fact that the Department of Education (ED) through its contracted servicers must communicate with borrowers at least six times before payment obligations resume, time is running out for borrowers to be prepared for payments to resume.
Mayotte stressed the importance of having all involved be in lock-step once the final decision to have student loan payments resume is made, including all involved in the federal government, student loan servicers, the financial aid community, and even borrowers’ employers.
Democrats have for months been pressuring the Biden administration to extend the pause — but as of late, they’ve changed the reasoning behind that message. While lawmakers initially urged the administration to extend the pause due to the economic impacts of the pandemic, they are now arguing that the Biden administration should use the time afforded by another extension to “fix” the student loan system holistically, including replacing existing income-driven repayment (IDR) plans with one that is available to all borrowers and easier to enroll in, capping monthly payments to no more than 10% of a borrower’s discretionary income, and further improving the Public Service Loan Forgiveness (PSLF) program, according to a recent letter from Sen. Patty Murray (D-Wash.), chair of the Senate education committee.
Another letter from the largest coalition of Democrats to date is pushing for another extension of the payment pause but steered away from calling for an exact dollar figure of loan forgiveness. Instead, the letter focused on providing borrowers clarity as the days until payments are set to resume dwindle.
"Given the fast-approaching deadline for borrowers to resume payments, your administration must act as quickly as possible to extend the pause and make clear to the American public your intention to cancel a meaningful amount of student debt,” the letter states.
On the other hand, banks and private loan companies have upped their push for payments to resume. With interest accrual on federal student loans frozen for the past two years, fewer borrowers have utilized companies like SoFi, which is an associate member of NASFAA, to refinance their loans.
“Borrowers today are paralyzed with uncertainty,” wrote SoFi CEO Anthony Noto in a blog post laying out the company’s recommendations for Biden. “Should they be socking away their savings in the expectation of having to eventually restart payments? Or can they use that money to make a down payment on a home, or invest in their retirement? Should they refinance their student loans at today’s low interest rates in advance of likely rate hikes this year and next year?”
Noto added that Biden should “end the confusion” by giving borrowers in default the permanent relief they need, including $10,000 in student loan forgiveness, targeting another possible extension to borrowers experiencing financial hardship, and “putting the affluent and capable back into repayment on May 2, 2022 as planned.”
Noto's recommendation of a multi-layered, targeted approach aligns with Mayotte’s and other student loan experts’ thinking in some ways, underscoring the importance of nuanced approach. But it also could prove to be a logistical nightmare that is not easily executed by a department already juggling several major tasks, from transitioning millions of borrowers to new servicers to overhauling major loan relief programs like PSLF.
To have the department utilize several different plans for the 35 million borrowers with federal loans in its portfolio may be too big an ask ahead of resuming payments, Mayotte said, who reminded that ED has never turned student loan payments off and on again. But she and others have stressed the importance of aiding borrowers in default and those that entered the pandemic struggling to make payments. Some form of debt forgiveness — namely $10,000 for each borrower — could go a long way toward helping those borrowers.
Regardless of some form of widespread debt forgiveness or fixes to the student loan landscape that make payments more reasonable for borrowers through tailored plans, Mayotte said it's important for borrowers to simply get back into the rhythm of making regular payments when the pause ultimately comes to an end.
“There's a lot of research out there that shows one of the biggest indicators of successful student loan management is actually being in the habit of repayment,” she said. “People that were in the habit of paying prior to the pandemic are going to be out of it over two years. And I have concerns about that.”
Publication Date: 4/4/2022