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Servicers Warn ED of Operational Disruptions as Loan Moratorium Approaches End Date

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

Once again, the student loan repayment pause is approaching its expiration.

With less than 10 days until repayments are slated to resume, servicers are warning that the federal loan program will be in a “precarious position” if the administration attempts to announce an impending resumption of repayment with such little notice. However, reports began to surface on Tuesday — after the letter was sent — that the Biden administration plans to make an announcement to again extend the repayment pause and reveal a decision on loan forgiveness on Wednesday.

In a letter from the Student Loan Servicing Alliance (SLSA), companies that manage the repayment system warn that the continued speculation over the wind-down of the payment pause is going to make communication efforts problematic for all involved.

“The Administration’s ongoing uncertainty about resumption of repayment on federally-held student loans puts the federal student loan program and your borrowers in an increasingly precarious position,” said Scott Buchanan, SLSA’s executive director. “You should be aware that any announcement at this late date, less than ten days before the scheduled resumption of September 1, risks operational disruptions.”

The long delayed decision from the White House has left many to question how the administration will juggle multiple intertwined efforts, including its “fresh start” initiative, the reworking of repayment plans through the negotiated rulemaking process, transitioning borrowers to new servicers, and even whether there will be broadscale debt cancellation — and how it would be implemented.

Servicers are warning the administration that the current time frame for a decision is “grossly insufficient” and that the system will need testing time along with some period to implement revised communication plans to inform borrowers of the status of their loans.

“If repayment does begin on September 1, as current directive requires, then you also should be aware that millions of borrowers will be confused, some caught massively off guard,” the letter warns. “Some may go delinquent unnecessarily, and it may take months to resolve those issues – as a result of FSA guidance to cease communication about the resumption to those borrowers.”

Check out NASFAA’s deep dive conversation with Scott that touches on where student loan servicing stands today. Stay tuned to Today’s News for updates on the status of the payment pause.

 

Publication Date: 8/24/2022


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