The federal student loan system “was not designed to start and stop at the same time for 30 million borrowers,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a business group that represents businesses that collect and manage loan payments on behalf of the Department of Education.
“It would be very chaotic,” he said.
In March, it took the Department of Education a few weeks to completely halt student loan payments after the CARES Act granted these benefits, and there were some administrative issues. The Trump administration was sued for failing to stop debt collection altogether against defaulting borrowers. And one of the department’s loan officers incorrectly reported data on suspended payments to credit bureaus on over 5 million borrowers, lowering their credit scores in some cases.
Student loan relief has helped borrowers avoid default and delinquency over the past eight months as the pandemic cracks the economy and unemployment skyrockets. The benefits even modestly helped improve the credit scores of student loan borrowers during the pandemic, especially for borrowers who were taken out of default, according to analyzes from the New York Fed and Urban Institute.
In an unusual alliance, credit industry officials are advocating alongside Congressional Democrats, higher education groups and consumer organizations, all warning that a sudden return to the government’s massive student loan apparatus federal government – mostly frozen since March – amid a presidential transition of angst for all involved.
The Ministry of Education’s previous targeted payment breaks in response to natural disasters resulted in spikes in delinquency among borrowers after aid, noted Debbie Cochrane, executive vice president of the Institute for College Access & Success.
“It’s hard to think this is going well for borrowers,” she said. “Helping borrowers to repay smoothly has never been done on this scale. “
Nearly 41 million federal student loan borrowers have had their loan interest suspended since March 13, starting with the CARES Act and continuing under Trump’s executive action over the summer. About 33 million of these borrowers had their payments suspended, and the education ministry stopped seeking to collect the remaining 8 million borrowers who were in default.
A Pew Inquiry Earlier this fall, 58% of borrowers who said their payments had been suspended during the pandemic said they would face difficulty if they had to start making those payments again next month.
Supporters of the benefit extension say activating payments amid a wave of coronavirus cases and remaining high unemployment levels would lead to an increase in defaults.
“There is no indication that we are going through the pandemic, and it’s a bit of a mystery why the administration that has already extended the benefits would not extend them yet again,” Cochrane said.
When Trump took executive action in August to grant the loan cancellation, he said, “Today I am extending this policy until the end of the year, and we will extend it further than that, most likely just after December 1. “
Many Democrats, including Senses Chuck Schumer and Elizabeth Warren (D-Mass.), Are pushing the new Biden administration to use executive power to go beyond simply suspending payments by writing off billions of dollars in unpaid debt altogether. .
During the campaign, Biden pledged to write off $ 10,000 per borrower as an immediate economic stimulus during the coronavirus pandemic, although he did not promise to provide this debt relief through executive action, as the progressives want.
The impending expiration of student loan benefits will likely present a more immediate and urgent challenge for the Education Department’s early days under Biden, who may have to scramble to restore relief.
In Congress, lawmakers could link an extension of student loan relief to a stimulus deal or a year-end government funding bill. But Democrats and Republicans have disagreed for months on whether to include an extension of student loan benefits as part of an economic bailout.
Stimulus legislation from the House Democrats would extend the freeze on student loan payments until next October and keep the interest rate at zero until then at least – or longer if the unemployment rate remains Student.
The Senate Republicans’ latest stimulus proposal did not include an extension of benefits, and Senate Majority Leader Mitch McConnell has said he wants to pursue a smaller pandemic relief bill. during the lame duck session.
Consumer groups, labor unions and civil rights organizations have already urged the Trump administration and Education Secretary Betsy DeVos to act to extend the benefits for at least another nine months.
“If the cliff is not resolved, borrowers will find it harder than ever to make ends meet as they are thrown back into forced repayments or collections as the economy continues to suffer,” the groups said. written in a letter to DeVos last month. “Waiting to resolve the problem will cause stress, confusion and unnecessary errors for borrowers, service agents and collectors. “
