Even before the COVID-19 pandemic, many federal student loan borrowers were struggling, with more than 1 million defaulting each year. To mitigate the challenges facing borrowers during the pandemic, the Biden administration has extended the period of paused payments, interest, and collections for most federal student loan borrowers through Sept. 30, 2021.
When this federal student loan payment pause ends, tens of millions of borrowers will transition back into repayment simultaneously. The impending shift out of the repayment pause will present an unprecedented challenge for the U.S. Department of Education, its Office of Federal Student Aid, and student loan servicers—the companies hired by the department to collect and help borrowers manage payments. A recent Pew survey indicates that as many as 9 million borrowers could reach out to these entities for help at the same time, potentially overwhelming the system.
If not managed properly, this transition could result in borrowers falling into delinquency and default. Past experience has shown rising delinquency and default rates after forbearances—such as those granted to borrowers affected by hurricanes and other natural disasters—ended.
In a letter sent to the Department of Education, Pew and a host of other organizations recommend concrete steps that the department can take before the payment pause ends to ensure all borrowers can transition successfully back into repayment. These include:
- Providing intensive, targeted outreach to borrowers who demonstrated signs of struggle before the pause;
- Providing clarity on auto-debit payments;
- Providing additional flexibility to borrowers who exhibit signs of stress after the pause ends;
- Ensuring that it is as easy as possible for servicers to enroll borrowers into income-driven repayment plans—those that calculate monthly payments based on borrowers’ incomes and family sizes and are more affordable for many—now and in the long term;
- Requiring student loan servicers to maintain a skilled workforce and ensuring proper servicer oversight;
- Addressing uncertainty surrounding Next Gen—a department initiative to modernize and streamline the technology and operational components of the student loan repayment system—and federal loan servicing contracts; and
- Continuing work on longer-term repayment reform.
We urge the department to take full advantage of the next seven months before the repayment pause ends to implement these recommendations.