Education Secretary Betsy DeVos announced Friday that pandemic relief for about 41 million federal borrowers will continue through Jan. 31.
In March, borrowers were given a reprieve on their loan repayments, interest was set at 0%, and collection of defaulting federal student loans was halted. Congress initiated this relief in the CARES Act, and President Trump later extended it.
“The coronavirus pandemic has presented challenges to many students and borrowers, and this temporary pause in payments will help those affected,” DeVos said in a statement. “The extra time also allows Congress to do its job and determine what action it deems necessary and appropriate.”
Ahead of DeVos’ latest action, the relief was set to expire Dec. 31, just weeks before President-elect Joe Biden’s inauguration on Jan. 20, making many who are considering loan repayment nervous.
“We know that times of uncertainty and transition can lead to borrower repayment delays,” says Sarah Sattelmeyer, director of the Student Borrower Success Project at the Pew Charitable Trust.
“One of the most important things for borrowers is consistency, and that will certainly ensure consistency until the new administration.”
Scott Buchanan, executive director of the Student Loan Servicing Alliance, said: “The ruling today gives borrowers a bit more flexibility. It means payment won’t have to resume for them. But we still have the question. who remains to know what happens after January 31.”
Regardless of when the current relief expires, Buchanan says any change will generate 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 Department of Education says it is now working with Federal Student Loans Services to notify borrowers of the extended relief measures and when payments are expected to resume. This messaging should start 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 a heartbeat,” says Sattelmeyer. And what happens when millions of borrowers don’t know when to pay? “Massive volume of incoming communications from borrowers that could overwhelm the wider system.”
Even a recent report from the Department for Education notes that the next resumption of payments could be messy. Loan servicers and the federal government, the report says, “will face a heavy burden to ‘convert’ millions of borrowers to active repayment.” The transition could also be confusing for borrowers, with some “going delinquent, at least initially.”
One solution suggested by Sattelmeyer is to create a short grace period for borrowers after payments resume – each time they resume – to try to catch those who are struggling to repay or those who are unsure. or confused about timing. She says it could potentially help borrowers avoid bad debts or defaults during a very confusing time.
“A lot of people are confused, and that’s extremely problematic,” says Sattelmeyer.
A Pew study conducted in August and September found that among borrowers who said the relief applied to them, about 40% did not know when their loan repayments were due to resume.
Sattelmeyer explains that borrowers are also struggling financially due to the pandemic: nearly 6 in 10 borrowers with paused payments told Pew that it would be difficult to start making their payments if they had to make them the month next.
Many hope the temporary pandemic relief for borrowers will open the door to more permanent loan forgiveness. But it’s unclear to what extent the Biden administration would do that. In November, Biden reiterated his support for a provision of the HEROES Act that asks the federal government to repay up to $10,000 in private, nonfederal student loans for “economically distressed” borrowers. But many Democrats want him to go further.
In September, Democratic Sens. Elizabeth Warren and Chuck Schumer unveiled a plan calling on the next president to forgive up to $50,000 in unpaid federal student loans per borrower. Biden has yet to signal interest in the plan. In his campaign proposal, he outlined a number of changes to loan repayment, including the cancellation of $10,000 in debt for students who work in national or community service.