Education Secretary Betsy DeVos announced on Friday that relief from the pandemic for about 41 million Federal student loan borrowers will continue until January 31.
In March, borrowers were granted a stay on their loan payments, interest was set at 0%, and collections on delinquent federal student loans were halted. Congress initiated this relief in the CARES Act, and President Trump later expanded he.
“The coronavirus pandemic has presented challenges for many students and borrowers, and this temporary pause in payments will help those who have been affected,” DeVos said in a statement. “The overtime also allows Congress to do its job and determine what action it deems necessary and appropriate.”
Before DeVos’ latest move, the relief was scheduled to expire on December 31, just weeks before President-elect Joe Biden was inaugurated on January 20, making loan repayments for many students nervous.
“We know that times of uncertainty and transition can cause borrowers to delay repayments,” says Sarah Sattelmeyer, Director of the Student Borrower Success Project at Pew Charitable Trust.
“One of the most important things for borrowers is consistency, and that will definitely ensure consistency until a new administration.”
Scott Buchanan, Executive Director of the Student Loan Servicing Alliance, says: “Today’s decision gives borrowers a bit more flexibility. This means that the payment will not have to resume for them. But we still have the question of what will happen after January 31st. “
Regardless of when the current relief expires, Buchanan says any changes will create confusion and many phone calls from borrowers.
“We still have the challenge of [millions of] borrowers start repaying at the same time. … Now the work begins to move everything.
The student loan system is not structured for frequent policy changes and extensions. The Education Department said it is now working with federal student loans to notify borrowers of extended relief measures and when payments are expected to resume. This post should begin before Biden takes office. And the timelines could change again if Congress steps in, or if Biden issues his own extension or offers other forms of relief.
“The student loan repayment system was not designed to start and stop in no time,” says Sattelmeyer. And what happens when millions of borrowers don’t know when to pay? “A massive volume of inbound communications from borrowers that could overwhelm the system at large. “
Even a recent education directorate report notes that the next resumption of payments could be messy. Loan managers and the federal government, according to the report, “will face a heavy burden in” converting “millions of borrowers into active repayment.” The transition could also be confusing for borrowers, with some “falling into delinquents, at least initially”.
One solution suggested by Sattelmeyer is to create a short grace period for borrowers after payments resume – whenever they resume – to try and catch those who are struggling to repay or those who are unsure or confused about the payment. calendar. She says it could potentially help borrowers avoid delinquency or default during a very troubling time.
“A lot of people are confused, and it’s extremely problematic,” Sattelmeyer says.
Pew Research conducted in August and September found that of those borrowers who said the relief applied to them, about 40% did not know when their loan repayments should resume.
Sattelmeyer explains that borrowers are also struggling financially due to the pandemic: Almost 6 in 10 borrowers with suspended payments reported to Pew that it would be difficult to start making their payments if they had to do so next month .
Many are hoping that the pandemic’s temporary relief for borrowers will open the door to a more permanent loan forgiveness. But it’s unclear to what extent the Biden administration would do so. In November, Biden reiterated its support for a provision in the HEROES law which calls on the federal government to repay up to $ 10,000 in private and non-federal student loans for “economically troubled” borrowers. But many Democrats want him to go further.
In September, Democratic Senators Elizabeth Warren and Chuck Schumer unveiled a plan calling for the next president to cancel up to $ 50,000 in unpaid federal student loans per borrower. Biden has yet to signal his interest in the plan. In his campaign proposalHe described a number of changes to loan repayment, including the forgiveness of $ 10,000 in debt for students working in national or community service.