Education Department braces for restart of student loan payments: ‘Herculean task’
Jeremiah Poff
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The Department of Education says the planned resumption of student loan payments in the coming months will be a monumental undertaking, but the Biden administration is committed to ending the three-year pause on loan payments by the end of the summer.
In December, President Joe Biden once again extended the pause on federally held student loan payments until the summer. The president said the latest extension to the pause that began in March 2020 under the Trump administration was necessary to allow the Supreme Court time to rule on the legality of his plan to cancel $20,000 in federally held student loans for borrowers making less than $125,000 and who received federal Pell grants. All other borrowers making less than $125,000 would receive $10,000 in loan cancellation.
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The Supreme Court heard oral arguments in the case in February, and with weeks left in the court’s term, a decision is expected before the end of June. Once the decision is handed down, the Department of Education says it is prepared to restart payments within 60 days.
“We communicated that after the Supreme Court decision is made, loan repayments will start within 60 days of the decision,” Secretary of Education Miguel Cardona said during a hearing of the House Education and Workforce Committee Tuesday. Cardona made similar assurances last week before the Senate Appropriations Committee.
The resumption of payments, which will affect some 43 million borrowers, is being described as a massive undertaking and has the Department of Education itself, as well as outside experts, concerned that the end of the pause comes with a path full of unavoidable pitfalls.
In a statement to the Washington Examiner, a spokesperson for the Department of Education called the planned resumption of payments “an unprecedented and herculean task” that requires a substantial amount of resources. The spokesperson said the agency is “deeply concerned” about the lack of funding for the Office of Federal Student Aid, the division within the Department of Education that handles student loans. Even still, the department said it was communicating with federal student loan servicers in preparation for the resumption of payments.
“As the Department has repeatedly made clear, restarting repayment requires significant resources to avoid unnecessary harm to borrowers, such as cuts to servicing,” the department said. “The Department remains in constant contact with servicers, and we continue to urge Congress to fully fund President Biden’s FY24 budget request, which would provide critical resources to FSA. At the same time, we will continue to work closely with servicers to prioritize providing services to borrowers as quickly and effectively as possible.”
Beth Akers, a senior fellow at the American Enterprise Institute and an expert in the economics of higher education, told the Washington Examiner that she has little confidence that the Department of Education will be able to start collecting student loan payments for the first time in more than three years “without some very big hiccups.
“Borrowers have had their loans on pause for three years now,” Akers said. “Most don’t have the time to follow the nightmarish and highly political timeline of whether or not loans will be restarted and I suspect many won’t be ready to make the payments when they first come due. It’s also unclear whether servicers, who actually collect loan payments, will be prepared to turn payments back on and start collection again.”
Akers explained that the loan servicers themselves have “been on pause” since payments and interest accrual were stopped and that in the meantime, the Department of Education under President Biden and Secretary Cardona has made “massive changes” to the federal student loan program that the servicers must adapt to.
“While I’m eager to get student loans back into repayment, I’m skeptical that this is going to be a smooth process,” she said.
The end of the pause will require borrowers to once again commit income that had been freed up for other expenses to monthly payments. Such a change in personal budget, Akers said, could potentially lead to a contraction of the economy. But, she added, with a strong economy and labor market, the effect is likely to be very small.
“In general, borrowers are in a good position financially to begin repayment on their loans,” she said. “The initial pause was motivated by the economic uncertainty surrounding the pandemic. But we now know that the most educated work, and those most likely to have student debt were least affected by the recession in terms of job loss. And regardless, even displaced workers have likely now found new and well-paying jobs. There is no economic justification to delay the start of loan repayment even further.”
While the Department of Education and Cardona have committed to restarting payments by the end of August, Akers said she wouldn’t be surprised to see the Biden administration extend the student loan pause yet again, given that to date, borrowers have not had to make payments since before Joe Biden took office in January 2021 and the 2024 presidential election looms large on the horizon.
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“It’s hard to imagine, in this political moment, that Biden is going to want to take the blame for restarting student loan repayment,” Akers said. “I think he is going to face a tough battle in the 2024 election cycle and will have to seriously consider whether alienating the constituency of student borrowers would be unaffordably detrimental to his campaign.”
For its part, the Department of Education said it is “focused on doing everything in its power to better serve students and borrowers” and is “fully committed to supporting student loan borrowers as they successfully navigate returning to repayment.”