Advocates Sound Alarm: Restarting Student Loan Payments During Servicing Chaos Will Be ‘Cataclysmic’ - Forbes

guduka.blogspot.com

Advocates for student loan borrowers are warning Congress and the Biden administration that it would be a disaster for borrowers to restart their payments amidst simultaneous widespread disruptions to student loan servicing this fall.

The current student loan payment moratorium has paused all payment obligations, frozen all interest, and stopped all collections efforts on government-held federal student loans since March of last year. After several extensions, that relief is scheduled to finally expire on September 30, resulting in billing operations for student loans resuming the following month. The simultaneous restart of payments for over 30 million student loan borrowers who have been in a forbearance has never occurred in the history of the U.S. student loan system.

Adding further complexity to the situation is the recent bombshell announcement of two major student loan servicers — FedLoan Servicing, and Granite State Management & Resources — who notified the Department of Education last month that they will be exiting the student loan servicing space and ceasing operations for the Department in the coming months. This will result in approximately 10 million student loan borrower accounts — nearly a third of all borrowers — being transferred to new loan providers in the coming months; the Department of Education has not yet worked out details of those transfers.

In testimony before the Senate Committee on Banking, Housing, and Urban Affairs last week, Persis Yu, Director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, raised the prospect of massive chaos for borrowers in the coming months.

“Even prior to the two servicers’ announcements that they were not renewing their contracts, research by The Pew Charitable Trusts concluded that ‘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,’” said Yu in her testimony. “At a time when two major changes are occurring for student loan borrowers, borrowers need the best servicing possible. Instead, they will likely encounter inexperienced customer service representatives and servicers who are stretched too thin.” Yu warned that “the combination of restarting repayment, along with the risks associated with large scale loan transfers by servicers with a long history of failing to adequately serve federal student loan borrowers, will have cataclysmic consequences unless meaningful consumer protections are put in place.”

Yu’s comments echo the concerns of other student loan borrower advocates and their allies in Congress. “Tick tock, tick tock,” said Senator Elizabeth Warren (D-MA) last week. “The payment pause is running out, and the size of these payments for many borrowers is the size of their rent or car payment,” which will lead to “hard choices.”

“Student loan borrowers... need the White House to extend the pause on student loan payments while Secretary Cardona and the student loan industry come up with a plan to fix the broken student loan system,” said Student Borrower Protection Center Executive Director Seth Frotman in a statement last month.

The student loan payment moratorium expires in 58 days. The Biden administration is reportedly considering a possible additional extension, and at least some officials working at the Department of Education believe an extension is warranted. But the administration has not indicated that a decision has been made. Meanwhile, starting this month, student loan servicers are required to start communicating with borrowers about their obligations to resume repayment.