More than three years after the federal student loan pause on interest accumulation, payments, and collection helped vulnerable families weather an economic catastrophe, payments on federal student loans are resuming. Many borrowers are approaching return to repayment with fear, trepidation, and a healthy amount of skepticism.
Most have poor information at best about their options, and with the risk of a federal government shutdown before Thanksgiving, their certainty about the little they do know has likely been badly shaken. What can borrowers expect during this stressful and confusing period, and how can the federal government maintain their confidence and equip them with the information they need?
Borrowers are right to worry: the U.S. Department of Education is in dire straits financially and needs increased funding and budget flexibility to ensure it can carry out necessary operations, loan servicing included.
On top of overseeing the return to repayment, the Biden administration is working to bring borrowers new forms of relief after the Supreme Court struck down student loan forgiveness this summer.
The new disarray is unfortunate not least because over the last year, the U.S. Department of Education (ED) has unveiled a series of measures aimed at protecting borrowers’ income and overall financial well-being.
In addition to the newly launched income-driven repayment (IDR) plan, ED has made good on its promise to process applications faster and offer debt relief to those who have qualified for forgiveness through various programs, including Public Service Loan Forgiveness (PSLF), borrower defense to repayment, and the one-time income driven repayment adjustment.
Despite these robust efforts to address the student debt crisis, countless borrowers are still unsure what they should do as they receive bills for loans that they do not have the means to pay. While there are a number of repayment and forgiveness programs available, borrowers are confused about which plan is “right” for them and which considerations—lowest monthly payment, shortest time to repayment, lowest overall repayment, etc.—should go into making that decision.
Borrowers who may in fact be best served through the new and existing debt relief programs can be paralyzed by indecision when selecting from options that are difficult to compare.
As a result, some may opt not to enroll in a loan relief program or make their monthly payment at all. Unfortunately, borrowers’ confusion can cause psychological harm in the short term, and if they make a decision on a repayment plan that doesn’t suit their needs, it can cause economic harm in the long term as well.
There are a number of factors that will complicate the return to repayment for many borrowers. During the federal student loan forbearance, several loan servicers ended their contracts with ED, which resulted in transfers of student loans to new borrowers. Some borrowers saw their loans change servicers more than once, complicating an already challenging return to repayment.
Those who graduated or withdrew during the same period are now engaging with the repayment system for the very first time, and will likely have questions about their accounts.
There are also several practical challenges that will impede a borrower’s ability to easily enter repayment. Borrowers who saw their servicer change may need to create new accounts with their new services and re-enroll in automatic payments, borrowers who moved during the pandemic will need to update their contact information, and borrowers who switched jobs may need to recertify their eligibility for some programs.
Add to this growing list of issues an extreme budget shortfall at the Department of Education itself, and understaffed services, and it’s clear how ripe the student loan repayment system is for error. If the Department of Education is to be successful in supporting a return to repayment, it must ensure all borrowers have the information they need to make informed decisions for themselves and their families.
