On Feb. 28, the Supreme Court will hear arguments on the Biden Administration’s student loan debt relief plan. In preparation for a final decision, the U.S. Department of Education (ED) extended the payment pause to 60 days after June 30, 2023 or 60 days after the litigation is resolved, whichever comes first.
When the pause is lifted, it will be over three years since federal student loan borrowers have been required to make payments. The return, according to Federal Student Aid (FSA), "will be a huge undertaking." (Source: FSA Annual Report)
FSA and student loan servicers are working together to mitigate upcoming challenges.
Borrowers
ED and its student loan servicers will be regularly communicating with borrowers, in numerous ways (e.g., email, social media, phone calls, etc.) to keep them informed about the transition back to repayment. As borrowers face student loan bills for the first time in over three years, it may be challenging to avoid delinquency or default. To ease the transition, ED previously stated it planned to:
- Provide additional assistance to certain groups of borrowers like those at risk of delinquency or in default.
- Temporarily not report missed payments to credit rating agencies along with providing additional flexibility during the early stages of resumed repayment.
(Source: GAO.)
Servicers
With the end of payment pause forthcoming, top of mind for FSA and student loan servicers is collaborating to address staffing needs, provide borrowers with clear communications and ramp up operational capacity to meet the need for high volume service.
- The number of major servicers has reduced from eight to six.
- 9 million borrowers may enter repayment all at once. (Source: FSA Portfolio by loan status, Q4: 2022 in grace and forbearance.)
- 6 million borrowers may be making student loan payments for the first time. (Source: FSA Portfolio by loan status, in grace Q3:2020-Q4:2022.)