Student-loan borrowers aren’t the only ones unprepared for payments to restart in the fall. On July 13, Democratic senators Elizabeth Warren and Ed Markey sent a letter to President Joe Biden with findings from a questionnaire sent to federal student-loan servicers that indicate the companies need more time “to ensure that borrowers are supported when reentering payment on their student loans.”
Federal student-loan servicers aren’t ready for payments to resume in the fallBY Sydney LakeJuly 15, 2021, 05:00 am
In late June, Warren, Markey, and Democratic Sen. Tina Smith sent letters to the CEOs of federal student-loan servicers requesting information about the steps the companies were taking to transition borrowers back to repayment. Responses show that the payment pause has provided significant relief to borrowers, yet most customers have had very little contact with their servicers during the freeze.
These letters were sent to Edfinancial, Granite State Management and Resources, Navient, Nelnet, Oklahoma Student Loan Authority (OSLA), Pennsylvania Higher Education Assistance Agency (PHEAA), and Higher Education Loan Authority of the State of Missouri (MOHELA). PHEAA announced in early July, however, that it would stop servicing federal student loans when its contract with the government ends Dec. 14, 2021.
“It is unprecedented to have the millions of federal student-loan borrowers enter repayment at the same time,” says Aaron Smith, cofounder of Savi, a tech company that finds new repayment and forgiveness options for people with student loans. “The news of PHEAA exiting the student-loan servicing space at the end of this year only adds to the uncertainty for borrowers.”
What the reports show
The federal student-loan servicers were asked a list of questions including how they have informed borrowers about payment resumption in October 2021, how they’ve ensured that customers are enrolled in an appropriate plan, and how they’ve identified at-risk borrowers.
Nearly 2.5 million borrowers fully repaid their loans during the payment pause by taking advantage of the 0% interest rate, according to data provided by the loan servicers. Even so, there are more than 44.7 million Americans still in debt.
Only one servicer reported that it had “extensive and ongoing outreach to discuss affordable repayment options,” while others have had little to no contact with borrowers. The companies say they’re waiting on the Education Department’s office of Federal Student Aid (FSA) to provide additional guidance about outreach. With only three months left to go until payments resume, one servicer says its “concerns over being best prepared to provide a smooth transition” continue to grow.
Servicers are legally required to communicate with their customers ahead of the payment resumption, Smith reminds borrowers. He says borrowers should be hearing from their student-loan servicers more in the coming months.
There’s more going on with student-loan servicers
Warren and Markey are using these findings as another tactic to push for the extension of the payment reprieve through at least March 31, 2022. In June, Democratic lawmakers sent a letter to President Biden urging him to extend the freeze on student-loan repayments through the spring, citing uneven economic post-pandemic recovery among student-loan borrowers.
The questionnaire responses didn’t just raise red flags about borrowers’ ability to resume payments. Findings also serve as a wake-up call to servicers to begin hiring additional support for when payments start again. Servicers reported a range of needs from 57 new hires to 900, according to the letter.
“As the economy recovers from this unprecedented crisis, borrowers should not be faced with an administrative and financial catastrophe just as they are beginning to regain their footing,” Warren and Markey wrote in the letter.
Is there any hope for debt cancellation?
Yes and no. Debt cancellation carries significant support from Democratic lawmakers, including Warren, who proposed directing the secretary of education to cancel $50,000 of each borrower’s student debt during her 2020 presidential campaign. The Education Department recently hired student-debt cancellation advocate Toby Merrill as a deputy general counsel in the department’s Office of the General Counsel. She’s also an ally of Warren.
Biden’s support remains questionable. He said during his campaign that he supported paying off $10,000 per borrower, but the funding for that was left out of his most recent budget proposal.