Three Democratic U.S. senators have sent a letter to President Joe Biden urging him to extend the temporary suspension on student loan payments “until at least March 31, 2022,” according to reports.
The current student loan forbearance took effect on March 27, 2020, under the CARES Act — signed by former President Donald Trump — and was extended until Oct. 1 after Biden took office in January.
Now, after more than a year, the payments and interest of roughly $72 billion are coming due again, with millions of U.S. borrowers preparing to be pinched by a belt-tightening reality on the heels of a financially devastating pandemic.
“The responses to our inquiry indicate that neither student loan borrowers nor student loan servicers are prepared for payments to resume, and servicers will need significant time to ensure that staffing and procedures are ready to provide borrowers with a high level of support."
Sens. Elizabeth Warren, Tina Smith and Edward J. Markey say Americans need more time and are keeping pressure on Biden to implement more widespread student loan forgiveness through executive action, but so far the president has been mostly unwilling to do so.
Letters sent to loan servicers
The senators first sent letters to the CEOs of all federal student loan servicers on June 21, seeking information on what the companies would do to ease millions of borrowers back into repayment at the end of the forbearance period, CNBC reported.
The legislators told servicers it was likely that borrowers would not have the wherewithal to make the same monthly payments that they had before the moratorium and that servicers, in turn, faced being overwhelmed as millions of borrowers called them simultaneously to ask for further extensions.
About a dozen agencies responded to the query and expressed concerns, including Nelnet, Edfinancial Services, Granite State Management & Resources (GSM&R), Missouri Higher Education Loan Authority (MOHELA), Navient, Oklahoma Student Loan Authority (OSLA) and Pennsylvania Higher Education Assistance Agency (PHEAA), according to CNBC.
“The responses to our inquiry indicate that neither student loan borrowers nor student loan servicers are prepared for payments to resume, and servicers will need significant time to ensure that staffing and procedures are ready to provide borrowers with a high level of support,” the letter to Biden said, according to CNBC. “We received responses from each of the servicers, and the majority provided substantive responses to our questions and data on their borrowers’ experiences during the pandemic. These responses overwhelmingly indicate that more time is needed to ensure that borrowers are supported when reentering payment on their student loans.”
Economists previously warned that when the suspension ended to expect a sudden increase in missed payments as more than one in four borrowers were already delinquent or in default on their loans before the pandemic began, CNBC reported.
The servicers acknowledged an “unprecedented” task lies ahead.
“Federal Student Aid servicers have never attempted to move 43+ million accounts into a repayment status all at once across the country,” reads the response from PHEAA. “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 continue to grow.”
PHEAA, which oversees the Public Service Loan Forgiveness program, added it will need to recruit, hire and train an additional 600 to 900 call center staff in order to address the needs of borrowers, CNBC reported.
More than 120 organizations, including the American Civil Liberties Union, the National Consumer Law Center and the Consumer Federation of America, have also reached out to Biden to extend forbearance until the “administration has delivered on the promises you made to student loan borrowers to fix the broken student loan system and cancel federal student debt.”
Many say that recent piecemeal reforms like the ones that have wiped away debt for defrauded and disabled students fall short of having a real impact for most families, and that loan forgiveness should be expanded to include a wider swath of middle-class Americans struggling to make ends meet.
Where the president stands
Biden previously said he supports the idea of forgiving $10,000 per borrower but also has expressed reservations about doing it unilaterally through executive action.
The president also said he would support making community college free and for allowing families who earn $125,000 or less to send their children to state schools for free. He also said he supports eliminating interest payments and expanding debt forgiveness programs for Americans who take public service jobs, such as teaching.
But Biden has stopped short of saying he would sign an executive order forgiving $50,000 in student loan debt for millions of Americans.
The resolution calling for $50,000 in debt relief was introduced in February by Warren and Senate Majority Leader Chuck Schumer of New York.
Such a move would cost about $800 billion and deliver 36 million Americans out of debt, according to reports.
The Higher Education Act of 1965 authorizes the U.S. secretary of education to cancel student loans, meaning Biden could order the move, according to Warren and Schumer’s provision. However, Biden didn’t have an appetite for such a unilateral move considering the stakes of hundreds of billions of dollars that would need to be wiped off the books all at once for nearly 40 million people.
“Canceling student loan debt is the single most effective executive action President Biden can take to lift the economic prospects of tens of millions of young Americans,” Warren said recently.
Supporters of the loan cancellation plan say it would spark a wide swath of the economy, including new business, consumer spending, retirement savings, homebuying and other sectors. Critics, however, say the move would only bring a modest bump to economic activity in GDP.
Republicans oppose the move.
The White House has continued to signal that Congress should pass legislation to achieve it as student loan matters typically fall under federal spending set by Congress.
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