In full transparency, the following is a media release from Sen. Ed Markey and Sen. Elizabeth Warren, who were elected by voters in the Commonwealth of Massachusetts to serve the state in Washington DC in the US Senate. Both are Democrats.
WASHINGTON DC – United States Senators Elizabeth Warren (D-Mass.) and Edward J. Markey (D-Mass.) sent a letter to President Biden sharing the results of the lawmakers’ inquiry into federal loan servicers’ preparations for the resumption of student loan payments and reiterating the call for President Biden to extend the current pandemic-induced pause on payments and interest until at least March 31, 2022.
“As the economy recovers from this unprecedented crisis, borrowers should not be faced with an administrative and financial catastrophe just as they are beginning to regain their footing. We strongly urge you to extend the pause on student loan interest and payments in order to allow time to begin to repair the broken student loan system,” the lawmakers wrote.
Last month, the lawmakers sent letters to the CEOs of all federal student loan servicers requesting information about the steps the companies are taking to transition approximately 30 million federal student loan borrowers back into repayments once the pause on student loan payments and interest ends in October 2021. The responses received by the senators – and released today along with the letter to President Biden – indicate that neither student loan borrowers nor student loan servicers are prepared for payments to resume, and servicers will need more time to ensure that they have staff and procedures in place to provide borrowers with the support that will be needed.
One servicer summarized the concerns, noting that “time is quickly passing and with less than three months now until the currently stated restart of repayment date, our concerns over being best prepared to provide a smooth transition for FSA borrowers continues to grow.”
The responses from servicers revealed that:
- The payment pause has provided significant relief to borrowers. According to data provided by five loan servicers, nearly 2.5 million student loans have been fully repaid during the payment pause, suggesting borrowers have taken advantage of the current zero percent interest rate to pay down the principal balance owed on their loans. Additional borrowers have qualified for forgiveness under the Public Service Loan Forgiveness program and enrolled in income-driven repayment plans.
- Most borrowers have had very little contact with their federal loan servicer during the pandemic payment pause. Only one student loan servicer provided information indicating that they have conducted extensive and ongoing outreach to discuss affordable repayment options, including supporting borrowers through the complex and time-consuming enrollment process for income-driven repayment plans. None of the other servicers reported similar levels of outreach to support struggling borrowers, and servicers indicated that they were waiting on additional guidance from the Education Department’s office of Federal Student Aid (FSA) before they could fully begin outreach and communication to borrowers.
- Servicers will need more time to ensure that staffing is adequate to support borrowers. Five loan servicers reported that they plan to hire additional customer service staff to support borrowers in the transition to repayment. The process of recruiting, hiring, training, and supervising additional staff may take three to four months and the scheduled resumption of payments is only 11 weeks away.
- Transitioning PHEAA borrowers to new servicers will require additional time to ensure that borrowers are not harmed. PHEAA’s recent announcement that it will not seek an extension of its federal loan servicing contract creates additional complexity for borrowers. The process of transferring borrower accounts managed by PHEAA to another servicer introduces new possibilities for errors, which could compound existing inaccuracies, preventing deserving public servants from qualifying for loan forgiveness.