Student Loan Payment Resume
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Activists and artists are calling on President Biden not to resume student loan payments and to cancel student debt on December 15, 2021. The White House is determined to resume payments in February, but there is still time to improve the process for borrowers. Paul Morigi/Getty Images for Us, 45 Million
Student Loan Payment Resume
In February, the Department of Education plans to activate the nation’s student debt collection machine for the first time in nearly two years. There is a real danger it won’t work well.
Student Loans 2022: When Do Student Loan Payments Resume?
Many in student debt have been shaken by unemployment, dislocation, and trauma during the pandemic. Even before the crisis, more than 1 million people defaulted on their student loans every year. A bad loan can be a disaster, ruining your credit and clouding your financial future. And recent history suggests that student loan defaults could trigger a default crisis of unprecedented proportions.
In 2017, student borrowers living in areas affected by wildfires and hurricanes automatically qualified for “forbearance,” which is student loan jargon for “you don’t have to make monthly payments.”
The period of tolerance ends in the following year. Federal officials overseeing the loan program soon began to notice a troubling pattern.
. If you miss a payment, you go into a kind of limbo called “delinquency,” where you can stay for up to nine months. If you keep missing payments, you fall to another level: default, where your wages, tax refunds, and Social Security checks can be garnished.
Things To Do Before Student Loan Payments Resume
When patient borrowers were required to start making repayments in 2018, the number of arrears began to rise. This continued for nine months and was immediately followed by an increase in the number of defaulters. Some people may not be able to contact the loan system and not know they owe money back. Or they remain unemployed and cannot afford it, or they have lost the habit of making monthly payments.
The risk is that this fire-and-rain defiance will happen again on a larger scale. This time, the disaster area is the entire country. The task is huge and unprecedented: to help more than 40 million people start paying off their loans at once. Some of the people hardest hit by the pandemic will be most vulnerable to the dormant student loan machine coming back to life.
A small group of for-profit and for-profit organizations called “servicers” manage the day-to-day work of the loan system: contacting borrowers when they go to college, setting up payment plans, and answering the phone. Servicers such as Nelnet and Great Lakes typically pay $2.85 per month for each managed-paying borrower who is currently on their loan, and less for defaulters.
Many of the decisions faced by departments and employees when payments resume boil down to choosing between different types of issues. For example, many borrowers repay loans by setting up automatic payments from their bank accounts. Should these payments be restarted after almost two years and risk incurring overdraft fees or withdrawals from unused accounts? Or should they require borrowers to take action to make payments, and risk people accidentally defaulting because they think the previous arrangement will simply continue? For now, the department has opted for the latter.
Biden Administration Extends Federal Student Loan Repayment Moratorium
But the biggest challenge is whether the government and servicers can find borrowers before their loans are due, and whether the service will have the capacity to help them if they have trouble paying.
Millions of people are moving to find new jobs after the pandemic unemployment or to be closer to family members who can care for children whose schools have been closed. The federal eviction ban expires in August, moving households that are also financially vulnerable to default. The more time, the more email addresses and phone numbers change, and the more difficult it is for providers to reach borrowers.
There are also millions of people in the system who have never paid off a loan before. About 70 percent of 18- to 29-year-olds borrowed for their bachelor’s degree; the class of 2020 passed the (virtual, in most cases) graduation stage a year and a half ago. They may have provided loan provider university email addresses that have been deactivated. Housing instability, unemployment, and student loan struggles can collapse on people all at once. Those most in need of high quality loan services may also be the hardest to reach people.
The servants tasked with tracking them down, meanwhile, may not have the staff to do so. Call center jobs require background checks and training on the intricacies of different loan plans. In normal times, the service adjusts its staffing levels in response to demand, resulting in more workers at the end of the calendar year, when people graduating from college in May typically start making loan payments. February 2022 will be the most abnormal time in the history of student loans, and the service will hire in the labor market strangled by “help wanted” signs. If even a fraction of borrowers call at once, the system will be overwhelmed.
When Will Student Loan Payments Resume? Soon Unless Congress Acts
It will be quite difficult if the service industry is stable. But since the start of the pandemic, four services that collectively manage 15 million accounts have announced plans to exit the business. Many have been criticized for their poor performance. In April, after a servicer’s CEO testified in a congressional hearing, Senator Elizabeth Warren told him to his face that he should be fired, then grilled another CEO about several lawsuits against his firm. Both servicers subsequently decided to drop out of the federal system, and their accounts are set to migrate to other servicers – creating additional logistical work and confusion for borrowers and increasing the workload for servicers still in the system.
In October, the Biden administration added another complication, expanding eligibility for the Public Service Loan Forgiveness program. It is a step in the right direction to help teachers, nurses, and others who deserve forgiveness. But it also adds complexity and strain to the already-challenged service system — especially since the clerks tasked with handling the pardon program are among those who will leave the system.
Federal officials understand the scope of the problem. The Department of Education’s chief operating officer, Richard Cordray, told Congress at a recent hearing that restarting the loan system was a “major challenge.” But as the Obama administration learned to its dismay during the failed debut of Healthcare.gov, knowing in advance that it would be daunting to disrupt the launch of an important government service on a tight deadline did not guarantee success. A new Government Accountability Office report found that the department’s student loan office has about 700 fewer employees than it needs to manage a program that has grown in size and complexity over the past 10 years.
The government could give servicers more money to hire and train a wave of employees to track down borrowers and handle the inevitable spikes that require guidance. It has made it easier to sign up for income-based payment plans, while accepting verbal declarations of income instead of standard requirements for documentation such as tax forms and W-2s.
Advocates Call For Continued Pause On Student Loan Payments As Families Face Record Inflation And Biden Weighs Action To Cancel Student Debt
The Department of Education is also considering creating a grace period in early 2022 that would give borrowers more flexibility to start repaying loans. But this only slows down the crisis for those who are in deep financial trouble. The department could make the problem more permanent by automatically putting people who were in default before the pandemic back into good standing and enrolling them in affordable income-based payment plans.
The department faces a ticking clock. The administration has repeatedly said there will be no more late payments, and President Biden seems unlikely to implement the kind of unilateral loan forgiveness that some supporters have called for. There is no doubt that the federal officials tasked with managing the restart had the best of intentions. But without immediate and aggressive action, it could still lead them, and millions of former students, down the standard hell road.
Kevin Carey writes about education and other issues. He is vice president at New America, a think tank in Washington, DC.
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Student Loan Payment Pause Could Extend Beyond September — But Be Prepared To Resume Repayment
A little more than three months. That’s how much time is left before about 41 million federal student loan borrowers
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