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A few weeks before President-elect Joe Biden officially takes office, a temporary freeze on federal student loan payments put in place by President Donald Trump is set to expire, and without a pathway to renewing that moratorium beforehand, Biden would inherit the task of addressing the issue.
Congress passed a bill in late March pausing payments on federal student loans and interest. In August, Trump extended the freeze until December 31. Borrowers were allowed to take advantage of the zero-interest period to continue paying down the principal on their loans, if they chose to.
With more than 40 million student loan borrowers in the US, experts told Business Insider that ending the payment suspension could be detrimental to individual borrowers, the economy, and even loan servicers.
Americans could be left struggling to make payments in the absence of a renewed student loan moratorium, and the Biden administration would need to find a solution for the likely economic consequences, a process that could take months to accomplish.
Scott Buchanan, executive director of the Student Loan Servicing Alliance told Business Insider the looming uncertainty around the student loan freeze poses challenges for servicers. Buchanan told Politico the federal student loan system “was not designed to start and stop at the same time for 30 million borrowers.”
The Department of Education has already begun reminding borrowers that payments will restart soon, and has been offering advice about the resources available to them, including a number of repayment options and deferments.
Without a solution extending the payment suspension, the number of requests for assistance could potentially overwhelm the companies managing federal student debt. Betsy Mayotte, president of the Institute of Student Loan Advisors, told Business Insider that servicers could experience delays that negatively impact consumers.
Mayotte explained the student loan payment freeze had helped servicers address assistance requests from borrowers. Without the moratorium, it would have been difficult for servicers and the US Department of Education to handle the demand, especially as they also navigated COVID-19 and managed employees who were working from home.
“I suspect that the delays would have been enormous. There absolutely would have been some borrowers that fell through the cracks there,” Mayotte said.
To address the millions of federal student loan accounts that would emerge from the payment freeze on December 31, Buchanan suggested implementing a tiered repayment system where borrowers who are least in need of assistance can opt into repayments first. It is not clear how servicers would determine which borrowers fall into that category, or how companies would encourage them to resume payments ahead of financially strapped customers.
A week before Thanksgiving, the future of the federal student loan freeze remains unclear. The Trump administration could decide to extend it, or if it ends, the incoming Biden administration could pursue a different path, or renew it retroactively when the president-elect takes office. And the likelihood of Congress addressing the matter as part of a new stimulus package before the end of 2020 is slim.
Mayotte said she doesn’t anticipate the Trump administration is …read more
Source:: Business Insider