Outreach From Borrowers Could Overwhelm Student Loan System When Pandemic Pauses End

As the COVID-19 pandemic unfolded this year, Congress and the Trump administration acted to help mitigate the serious challenges confronting federal student loan borrowers by automatically pausing payments and interest charges for most loans and suspending collection efforts for those in default until Dec. 31.

But a recent survey conducted for The Pew Charitable Trusts highlights potential difficulties ahead for borrowers when payments resume in January. Those who benefited from the pauses will have to simultaneously navigate financial challenges, continued uncertainty, and a confusing repayment system, which could drive them to reach out to student loan servicers for help in unprecedented numbers. These findings point to the importance of providing targeted assistance to those who are struggling—before the pauses end.

The survey, conducted in August and early September, shows that borrowers are aware of the pandemic assistance, but many are confused about whether and how the provisions apply to them.

Eighty-one percent said they knew about the pauses. A number of factors have probably contributed to this high level of awareness, including media coverage, outreach from the U.S. Department of Education and student loan servicers, and the fact that many borrowers have not had a bill due since March.  

Still, only 67% who had heard about the pauses said they believed the protections applied to them. According to a June Government Accountability Office report, more than 40 million borrowers—over 90% of the 42 million with a federal loan—have at least one loan eligible for the paused payments, interest accrual, or collection efforts. But awareness of the pandemic assistance may not have translated into an understanding of their own eligibility for several reasons. Borrowers may have loans that are not eligible for assistance, may not know the status of their loans, may have been confused by earlier delays in suspension of some collection efforts, or may have loans already in a paused status (because of deferment, forbearance, or enrollment in school, for example).

Importantly, servicers automatically applied the assistance to eligible borrowers’ accounts, regardless of their knowledge of the program. Although some may have chosen to continue making payments, others might have done so unknowingly because of this gap in understanding.

Among those who said the pauses applied to them, 61% knew when they would need to resume payments. The pauses were rolled out in March and extended in August (when this poll was in the field), which may have contributed to confusion among some borrowers. In addition, research examining financial insecurity more generally has found that limited access to financial resources may constrain families’ abilities to navigate complex structures such as the student loan repayment system.

Although communications and media coverage will ramp up as Jan. 1 approaches, this confusion creates challenges for the department and loan servicers.

Many borrowers may struggle to afford their payments after the pauses end and will face a confusing system as they assess their options.

Almost 6 in 10 borrowers (58%) who were aware of and reported paused payments said it would be somewhat or very difficult to afford their payments if they had to begin making them in the next month. These borrowers may need assistance identifying and enrolling in affordable options, such as income-driven repayment (IDR) plans. These plans tie monthly payments to family size and income and can result in borrowers without income owing nothing for a period, which could help many at a time of high unemployment.

Seventy-five percent of borrowers had heard about IDR plans, which is good news. But research shows that enrolling—and staying—in these plans can be challenging. The income and other data needed must be recertified annually, and borrowers frequently use tax information to do so. Because millions have recently lost jobs and are experiencing income volatility, the information in their prior year’s tax returns may not match their current incomes. And the process for updating this data to reduce monthly payments can be complex and time-intensive for borrowers and servicers.

Simultaneously navigating uncertainty, financial challenges, and a confusing repayment system could lead borrowers to reach out to loan servicers in unprecedented numbers when payments resume, overwhelming the system.

At the time of the survey, 22% of those who were aware of the pauses said they had reached out for more information. Much of this volume was probably concentrated in the spring when the pauses were announced, as it similarly was with home mortgage loans. Such outreach is likely to be even greater in January, when the pauses automatically end for millions.

If 22% of federal borrowers were to reach out in January, servicers could be fielding inquiries from more than 9 million people. At the same time, these entities have faced challenges operating support centers during the pandemic and will need to ensure that they are appropriately staffed.

The survey results highlight the importance of identifying borrowers who are likely to struggle and providing targeted assistance before the period of paused payments ends.

To do so, Congress and the Department of Education should:

• Continue and expand targeted outreach and measure the outcomes. Pew research highlights indicators that can help identify at-risk borrowers before they are in distress. The department and servicers could use existing data to target such borrowers, looking at those who were delinquent, were experiencing hardship, or had paused payments repeatedly and for long periods before the pandemic. They should measure the outcomes of this outreach, and the department should require the use of best practices in future efforts.
• Provide a grace period for those who struggle after the paused payments end. Automatically allowing additional short-term periods of paused payments for those who miss payments immediately after the protections expire would give servicers more time to reach them and borrowers more time to manage automatic debit arrangements.
• Ensure easy access to affordable payments. The department has already extended the IDR repayment deadline for millions of borrowers. To provide repayment flexibility at a time of great uncertainty, servicers should be permitted to enroll borrowers in IDR plans without requiring extensive paperwork—for example, orally, through a website, or through electronic communication.

This study was conducted for Pew via telephone (landline and cell) by SSRS on its Omnibus survey platform. The SSRS Omnibus is a national, weekly, dual-frame Spanish and English telephone survey. Interviews were conducted Aug. 4-23 and Sep. 1-6, 2020, among a sample of 1,831 respondents. The margin of error for all respondents was +/-2.62 percentage points at the 95% confidence level.

Sarah Sattelmeyer is the project director and Lexi West is a senior associate with The Pew Charitable Trusts’ project on student borrower success.