The Biden Administration extension of pause on student loan repayments as of August 31, 2022, was the latest in a series of significant steps it has taken to helping 41 million borrowers focus on their basic needs during the COVID-19 pandemic and support the country’s broader economic recovery. The administration also announced it would remove borrowers from default and delinquency, giving what has been aptly dubbed a ‘fresh start’ to those most severely affected by the loan repayment system. broken down students.
These are extremely important measures to protect borrowers, but the problems with the repayment system – and its reliance on private student loan servicers who contract with the federal government – have been accumulating for years and, realistically, they cannot be resolved by August 31.
Borrowers should not be expected to start repaying their loans until the federal government and its contractors are ready. The pause will need to be extended beyond August to give the Biden administration and Congress more time to implement key reforms to service and reimbursement systems, as well as to make a decision on the proposals that were considered for some level of debt cancellation for all borrowers.
The student loans department is in a tricky place
Several repairers stopped working on federal student loans for the past year, creating the potential for a chaotic return on payments. These departments must transfer borrowers’ accounts to other departments within the system, a process that remains incomplete. In addition, a large number of borrowers newly eligible for the Public Service Loan Forgiveness Program (PSLF) will continue to switch from one service to another due to an exemption from the administration Free to address some of the issues that prevent borrowers from receiving forgiveness after 10 years of public service. Until this mass transfer is completed, the risk is too great that borrowers will not know how or to whom they should make their payments.
In the longer term, the way the US Department of Education and its departments manage $1.6 trillion student loan portfolio needs systemic improvements. In February, the department shared its latest service reform plan, which included new contracts with service companies, a one-stop website where borrowers could make payments, and increased oversight of companies that handle specialized accounts such as PSLF. In addition, the Ministry of Education has stated that it strengthen customer service standards in new contracts.
These changes could greatly improve the borrower experience, but the integration of potentially brand new businesses could also be disruptive. The Department of Education expects the new service contracts to go live in December 2023, but given the history of previous attempts to improve service, it is reasonable to expect delays.
Income-Based Reimbursement Needs Concerted Attention
Congress and the Biden administration also still have work to do to fix the income-contingent repayment (IDR) program, another essential part of a working repayment system meant to ensure low-income borrowers don’t have to. to pay only what they can afford. This includes putting in place a better plan for borrowers who will enter repayment in the future as well as providing relief to those who have already been harmed by irresponsible services and poorly designed programs.
NPR recently reported that repairers have done an even deeper and more widespread disservice to borrowers on IDR than was previously known publicly. Some service agents were not taking the most basic measure of tracking how far borrowers were progressing toward forgiveness after 20 to 25 years, depending on the specific IDR plan they were enrolled in.
Unfortunately, IDR’s reform efforts to date have been insufficient. More recently, a negotiated rules development committee convened by the Ministry of Education couldn’t agree on a proposal to create a new IDR plan. Even if the department eventually comes up with a better plan, it can’t solve all IDR problems; only Congress can consolidate and improve existing plans. A better IDR plan would be simple to understand, accessible to all borrowers, have a shorter forgiveness period or gradual forgiveness, and be interest-free.
It’s important to keep in mind that these failures hit some borrowers, especially black borrowers and those who never graduated, far more heavily than others. Until substantial improvements are made to the IDR, borrowers will face the same challenges as before the pandemic, with approximately a fifth of all borrowers failing to repay their loans.
In the meantime, as recently proposed by student loan advocates, the Department of Education could use the same authority under which it created the PSLF waiver to ease the IDR burden. An IDR waiver would retroactively count every month after the borrower has committed repayment toward discount and provide automatic discount to those who qualify. For the 4.4 million borrowers who have been repaying their loan for more than 20 years, this waiver would result in instant debt relief.
Until now, the reimbursement pause was rooted in the national emergency first declared by former President Donald Trump in March 2020 and the last extended by President Joe Biden in February. Since the national emergency is likely to end before all necessary reforms can be implemented, Congress or the administration may need to consider other ways to further extend the pause until the key reforms are carried out. This will help the federal government better serve its people, improve racial equity, and help strengthen the economy.