The Chances That Biden Extends The Student Loan Payment Pause Just Went Up — A Lot - Forbes

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Student loan borrowers hoping that President Biden will extend the current moratorium on student loan payments just got a huge boost.

The CARES Act, a law passed by Congress last year in response to the pandemic and recession, temporarily suspended all payments and froze all interest on government-held federal student loans. The bill also paused all collections activities on defaulted federal student loans. The student loan payment moratorium was originally set to last six months, but it has since been extended several times. The current extension of the moratorium ordered by President Biden is set to end on September 30, 2021.

Several recent developments indicate that there is now a strong possibility that the student loan payment pause will be extended into 2022.

FedLoan Servicing Announces It Will Not Renew Student Loan Servicer Contract

The Pennsylvania Higher Education Assistance Authority (PHEAA), which operates FedLoan Servicing — one of the U.S. Department of Education’s primary student loan servicers — abruptly announced yesterday that it plans to suspend its federal student loan servicing business later this year. FedLoan Servicing’s contract with the Department expires on December 14, 2021. It will not seek any further extension or renewal of its contract.

This will have significant consequences for student loan borrowers. 8.5 million borrower accounts will need to be transferred to different student loan servicing companies — an often disruptive process that can cause lasting harm to borrowers in the form of lost records, missed payments, surprise late fees, and erroneous credit reporting.

The student loan payment pause ending only six weeks prior to the termination of FedLoan Servicing’s contract will only compound these problems and lead to further confusion and disruption for borrowers as their student loans resume repayment. Advocacy groups for student loan borrowers were already concerned that student loan servicers would be overwhelmed and unable to handle millions of borrower accounts simultaneously resuming repayment, an event that has no precedent. With 8.5 million student loan account transfers added to the mix, the results could be catastrophic for borrowers.

Student Loan Borrowers Are Not Ready To Resume Repayment

Millions of student loan borrowers may not be able to resume repayment this fall. A survey conducted by Student Debt Crisis and Savi found that 90% of student loan borrowers are not ready to start repaying their student loans after the moratorium ends in September.

Furthermore, with the Covid-19 Delta variant spreading in various pockets of the country, the pandemic may not be slowing down sufficiently enough to justify a resumption of student loan payments. The Biden administration had previously suggested that a further extension of the student loan pause would be possible depending on the status of the pandemic. At a public event in May, Secretary of Education Miguel Cardona said, “We’re looking at it. Obviously, we’re going to always take the lead from what the data is telling us and where we are as a country with regards to the recovery of the pandemic. [A further extension] is not out of the question.”

Education Department Officials Reportedly Support A Further Extension Of The Student Loan Pause

According to POLITICO, key officials at the U.S. Department of Education are supportive of extending the pause on student loan payments to at least January 2022. These officials would appear to be in line with a broad coalition of consumer rights groups and progressives in Congress who have been urging the Biden administration to extend the student loan moratorium so that there is more time to fix and address key student loan programs that have been mired in administrative and bureaucratic woes for years.

“The pause on student loan payments has been a huge relief for families, but it ends in 100 days,” said Senator Elizabeth Warren (D-MA) in a Tweet last week. “We're urging President Biden to extend it at least another 6 months to give [the U.S. Department of Education] more time to prepare, and borrowers and our economy more time to recover.”

Warren, along with Senate Majority Leader Chuck Schumer (D-NY), and Reps. Ayanna Pressley of Massachusetts and Joe Courtney of Connecticut, wrote a letter to President Biden urging him to extend the moratorium. "Restarting payments... will present a significant challenge for borrowers, loan servicers, and the Department of Education, and we urge you not to let the payment pause lapse when borrowers are still depending on this financial relief," the officials wrote. They argued that Biden should extend the moratorium to March 31, 2022 or beyond, depending on the state of the economy.

Advocacy groups echoed these sentiments in a letter they sent to President Biden in March. “There is a broad consensus among borrowers, advocates, industry, regulators, enforcement officials, and lawmakers of both parties that a rush to resume student loan payments is a recipe for disaster, absent significant structural reforms and real, immediate relief, such as debt cancellation, for borrowers trapped in this broken system.”

Next Steps

It is ultimately up to the White House to determine whether or not to further extend the student loan payment pause. The Biden administration has not expressly stated whether a further extension will happen, nor has there been any indication of a possible timeline for an announcement.

There has also been no word on whether the Biden administration is moving forward with broad student loan forgiveness. President Biden directed his administration to conduct a formal legal review of authorities that could be the basis for cancelling student loan debt using executive authority. That review is ongoing.