The federal student loan system “wasn’t designed to start and stop 30 million borrowers at the same time,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trading group that represents the companies that collect and manage loan payments on behalf of Education .
“It would be very messy,” he said.
In March, it took Education a few weeks to completely suspend student loan payments after the CARES law granted these benefits and there were some administrative issues. The Trump administration was sued for failing to completely stop collecting debt from defaulting borrowers. And one of the department’s lending service providers incorrectly reported data on suspended payments to credit bureaus of more than 5 million borrowers, which in some cases resulted in a decrease in creditworthiness.
The student loan relief has kept borrowers away from defaults and crime for the past eight months, with the pandemic crating the economy and skyrocketing unemployment. The benefits even modestly contributed to improving the creditworthiness of student loan borrowers during the pandemic, particularly borrowers pulled out of default New York Fed and Urban Institute.
In an unusual alliance, representatives of the credit industry, along with Congress Democrats, university groups and consumer organizations, all advocate that a sudden reversal of the federal government’s massive student loan apparatus – which has largely been frozen since March – in the middle of a change of president could lead to torment for everyone involved.
Education’s earlier targeted payment breaks in response to natural disasters have resulted in an increase in borrowers’ arrears after the relief, noted Debbie Cochrane, executive vice president of the Institute for College Access & Success.
“It’s hard to believe that this is good for borrowers,” she said. “It has never been possible on this scale to help borrowers get back to repayments smoothly.”
Nearly 41 million federal student loan borrowers have suspended interest on their loans since March 13, beginning with the CARES bill and continuing through the summer under Trump’s executive move. About 33 million of these borrowers have had their payments stopped and education stopped making deposits from the 8 million other borrowers who were in default.
ONE Pew poll Earlier this fall, 58 percent of borrowers who said their payments had been suspended during the pandemic said they would have trouble if they had to resume those payments the next month.
Proponents of expanding benefits say turning on payments amid an increase in coronavirus cases and persistently high unemployment would lead to an increase in defaults.
“There is no indication that we made it through the pandemic and it is a mystery why the government, which has already extended the benefits, would not extend them again,” said Cochrane.
When Trump took executive action to allow lending in August, Trump said, “Today I am extending this policy through the end of the year and we will extend it beyond that, most likely immediately after December 1st.”
Many Democrats, including Sens. Chuck Schumer and Elizabeth Warren (D-Mass.), Are urging Biden’s new administration to use executive power to go beyond pausing payments by permanently canceling billions of dollars in outstanding debt .
Biden pledged during the campaign to cut $ 10,000 per borrower as an immediate economic incentive during the coronavirus pandemic, despite not promising to grant that debt relief through executive action as the progressives would like.
The upcoming expiration of student loan benefits is likely to present a more immediate and urgent challenge to the first few days of the Education Department under Biden, which may have to strive to restore relief.
In Congress, lawmakers could add an extension of the student loan relief to a stimulus agreement or a state finance bill at the end of the year. But Democrats and Republicans have disagreed for months on whether or not to include a student loan extension as part of an economic bailout.
The House Democrats’ stimulus bill would extend the student loan payment freeze until next October and keep the interest rate at zero until at least then – or longer if the unemployment rate stays high.
The recent Senate Republican stimulus proposal did not include an extension of the benefits, and Senate majority leader Mitch McConnell said he wanted to pursue a minor pandemic relief bill during the Lame Duck session.
Consumer groups, labor unions and civil rights organizations have already urged the Trump administration and Education Secretary Betsy DeVos to take action to extend benefits for at least another nine months.
“If the cliff is not resolved, borrowers will find it harder than ever to make ends meet when they are thrown back into repayments or forced collections while the economy continues to suffer,” the groups said wrote in a letter to DeVos Last month. “Waiting for the cliff creates unnecessary stress, confusion and error for borrowers, servicers and collectors.”