She doesn\u2019t know how much her student-loan bill will be when the years-long pandemic-era freeze on payments ends. Eminger\u2019s loans were transferred during the pandemic to a new servicer, but she\u2019s struggled to communicate with the organization, which could help her learn her monthly payment amount. She\u2019s also rushing to take steps that could provide her access to a loan-forgiveness program for public servants.\u00a0<\/p>\n
\u201cI am very nervous about them starting again,\u201d Eminger, 37, who has about $175,000 in student debt, said of the loan payments. \u201cThere\u2019s just a lot of uncertainty and murkiness around it, which for a loan amount of my size is pretty scary.\u201d\u00a0\u00a0<\/p>\n
After a more than three year freeze, payments, collections and interest are scheduled to resume on federal student loans later this year. This is the ninth time \u2014 spanning two administrations \u2014 that the government has threatened to turn payments back on. Once again, borrowers, advocates and servicers are gearing up for a financial and operational headache.\u00a0<\/p>\n
\u201cIt\u2019s going to be frustrating for everybody involved, borrowers, servicers, the Department of Education, advocacy organizations like ours,\u201d said Betsy Mayotte, the president of the Institute of Student Loan Advisors, a nonprofit that helps borrowers manage their student loans.\u00a0<\/p>\n
To advocates who pushed officials to delay restarting payments in the past, this moment in many ways looks similar to the months before the freeze was scheduled to end eight other times. A challenging economy means borrowers\u2019 budgets are still tight and promised fixes to the student-loan system that could help ensure a smooth transition to repayment and make borrowers\u2019 bills more manageable still haven\u2019t materialized.<\/p>\n
But a few key factors are different, some of which are upping the pressure on the Biden administration to turn the student-loan system back on: The official end to the pandemic emergency, congressional Republicans taking aim at the payment pause in two pieces of legislation and multiple lawsuits challenging the freeze. Other elements unique to this moment are exacerbating the uncertainty and challenges related to restarting payments. Servicers will have fewer resources than in the past to handle a likely crush of calls.<\/p>\n
\u201cThe Department remains focused on doing everything in its power to better serve students and borrowers, and we are fully committed to supporting student loan borrowers as they successfully navigate returning to repayment,\u201d a Department of Education spokesperson wrote in an email. \u201cThe Department is deeply concerned about the lack of adequate annual funding made available to Federal Student Aid this year,\u201d the spokesperson said, referring to Congress\u2019s decision not to increase funding for FSA, despite the agency\u2019s request. \u201cAs the Department has repeatedly made clear, restarting repayment requires significant resources to avoid unnecessary harm to borrowers.\u201d\u00a0<\/p>\n
For Eminger, like some borrowers, part of the anxiety surrounding the restart to payments stems from major upheaval to the student-loan system that\u2019s been announced during the pause that will make her loans more manageable. But accessing these benefits requires both diligence \u2014 staying on top of announcements and paperwork \u2014 and patience while she and others wait for officials to fully implement the initiatives.\u00a0<\/p>\n
\u201cThe rules have been changing so much,\u201d she said. \u201cBefore the pandemic I felt like I very much understood what I was required to do. I always felt very on top of it. Now it just feels like a completely moving target.\u201d\u00a0<\/p>\n
Compounding her uncertainty is a lack of clarity surrounding exactly when payments will resume. In November, President Joe Biden told borrowers they can expect the pause to end some time in the late summer, but he didn\u2019t give an exact date. In addition, it\u2019s hard for Eminger to see how this deadline for payments to restart is different from all the others, where student loan bills never materialized. All of that has made it difficult for Eminger to figure out exactly when to take steps to make sure her student loan bill can fit in with the rest of her budget, like selling her car.\u00a0<\/p>\n
\u201cIt does not feel real at all,\u201d she said of the restart of student loan payments. \u201cIt would be great to name a date. If they could name a date and if that date felt certain then you could plan.\u201d\u00a0\u00a0<\/p>\n
***<\/strong><\/p>\n The Biden administration has said that the freeze will end 60 days after litigation surrounding its plan to cancel up to $20,000 in debt for a wide swath of borrowers is resolved or 60 days after June 30, 2023, whichever comes first.\u00a0<\/p>\n \u201cWhen payments turn back on it\u2019s going to be a big problem,\u201dsaid Eleni Schirmer, a researcher and organizer with the Debt Collective, a debtor activist group, \u201cbut to not even be granted the dignity of a clear date of when that happens just makes it even more of a problem.\u201d She described providing a ballpark for the restart of payments instead of an exact date as signaling an \u201calmost cruel indifference,\u201d for how resuming student loan bills will impact borrowers.\u00a0<\/p>\n That uncertainty could exacerbate the stress that student debt already places on borrowers, according to Daniel A. Collier, an assistant professor of higher education at the University of Memphis, who is studying the impact of student debt on mental health. What he\u2019s found is that people who are the most uncertain about what\u2019s going on with their student loan have the highest rates of psychological distress and suicidal ideation. For example, these borrowers worry they\u2019re not getting an accurate sense of their balance or the number of payments they need to make before qualifying for a forgiveness plan.\u00a0<\/p>\n \u201cPeople are concerned about the pause because they don\u2019t know what a restart looks like, this has never been done before,\u201d he said. In the past, when payments have resumed after more limited pauses, delinquencies and defaults spiked \u2014 part of the Biden administration\u2019s legal rationale for tying mass debt cancellation to the restart of payments. Borrowers don\u2019t know \u201cwhen it\u2019s going to start, what their repayments are actually going to be,\u201d Collier added.\u00a0<\/p>\n Kevin Noonan, who together with his wife has about $100,000 in student debt, said he\u2019s benefited from the pause. The couple has used the extra room in their budget to pay down private student loans. Still, Noonan is \u201cfrustrated\u201d with the lack of clarity surrounding payments resuming and the status of the administration\u2019s loan forgiveness plan.\u00a0\u00a0<\/p>\n \u201cNot knowing is the hardest part,\u201d he said. \u201cI have a Google alert set up, every time student loans come up I check everything. You kind of just have to plan for the worst-case scenario.\u201d\u00a0\u00a0<\/p>\n The decision to tie the resumption of payments to the court\u2019s decision \u201cadded an element of unpredictability,\u201d said Persis Yu, managing counsel and deputy executive director at the Student Borrower Protection Center, an advocacy group.<\/p>\n \u201cThere\u2019s the choice to not land on a certain date, but there\u2019s also the choice of 60 days,\u201d Yu said, referring to the 60-day delay in between the court\u2019s decision and payments resuming.\u00a0<\/p>\n \u201cI really wonder whether or not 60 days is enough time for borrowers,\u201d she said. \u201cWhen we think about the amount of work that is really going to have to happen to effectively turn on this system, 60 days does not seem like a lot of lead time.\u201d\u00a0<\/p>\n Secretary of Education Miguel Cardona said in a Congressional hearing this month that the agency is \u201cpreparing to restart repayment because the emergency period is over.\u201d He told another congressional panel that the agency is \u201cgeared up and ready to go,\u201d to resume payments.\u00a0<\/p>\n Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group, said that 60 days should be enough time for student-loan servicers to implement the restart to payment. In order to accomplish that, they\u2019ll need to be able to communicate with borrowers in the coming weeks about the end of the payment pause and be allowed to offer flexibilities like forbearance and allowing borrowers to verbally recertify their income for payment plans.\u00a0<\/p>\n When the end of the payment freeze loomed in the past, servicers didn\u2019t have the go-ahead from the Department of Education to communicate with borrowers, Buchanan said. They still don\u2019t, but servicers have been working closely with officials to discuss the \u201ccommunication playbook\u201d in recent weeks and hope to roll it out shortly.\u00a0<\/p>\n The Department of Education \u201cremains in constant contact with servicers,\u201d the Department spokesperson wrote in an email and will be in \u201cdirect contact\u201d with borrowers before the end of the payment freeze.<\/p>\n \u201cEngaging with servicers to ensure they are communicating directly with borrowers about successfully returning to repayment is an important part of the Department\u2019s efforts to smoothly transition borrowers back into repayment,\u201d the spokesperson wrote.\u00a0<\/p>\n Still, the uncertainty surrounding exactly when payments will start could create an obstacle to a seamless return to repayment, Buchanan said.\u00a0<\/p>\n \u201cIf you\u2019re a family and you\u2019re planning a budget you need to know what is the date that I need to be prepared to make this payment,\u201d he said. \u201cHaving a fuzzy date doesn\u2019t do anyone any good including servicers, but especially for borrowers.\u201d\u00a0<\/p>\n Borrowers will receive a bill at least 21 days before their payments are scheduled to resume and likely won\u2019t end up having to make a payment until October, Politico reported last month. Officials are also considering offering borrowers a grace period when the freeze ends, according to Politico.\u00a0<\/p>\n Servicers will be implementing plans the Department previously developed to restart payments, Buchanan said. But they\u2019ll be working with fewer resources than previously anticipated. The Department of Education cut the amount it\u2019s paying servicers to manage each account. The agency has said the cuts are due to lawmakers\u2019 decision not to increase funding for the Office of Federal Student Aid for the 2023 fiscal year. The lack of funds will mean fewer customer service representatives and fewer call center hours, including none on weekends.\u00a0<\/p>\n \u201cWhat is the right level of resources?\u00a0 How many staff should you have? It\u2019s not a definable thing,\u201d Buchanan said. \u201cWhat I can say is having fewer than we had before does not make it better.\u201d\u00a0<\/p>\n The Department spokesperson said the agency will keep working with Congress to fully fund President Biden\u2019s fiscal year 2024 budget request. The Department asked for a $620 million increase in funding for FSA.\u00a0<\/p>\n \u201cRestarting repayment requires significant resources to avoid unnecessary harm to borrowers,\u201d the spokesperson wrote in the email.\u00a0<\/p>\n In addition, the Department of Education recently announced an overhaul of the student-loan servicing system aimed at increasing accountability for servicers. For years, borrowers and advocates have complained that the firms don\u2019t provide borrowers with enough or the right information. Without that in place, Yu worries that ensuring borrowers have a truly affordable payment will be \u201ca nightmare.\u201d<\/p>\n \u201cAt this inflection point where you need the best servicing possible, we don\u2019t have it,\u201d she said. \u201cIt seems irresponsible to turn on the payment system into a broken servicing system and into a broken system overall.\u201d\u00a0\u00a0<\/p>\n Though the new servicing system won\u2019t go live until 2024, \u201cour servicer contracts continue to include the same requirements that all vendors effectively serve our customers and still provide that servicers compete against each other to maintain low call abandonment rates,\u201d the Department spokesperson wrote in the email.\u00a0<\/p>\n Fixing servicing is just one of many announcements from the Biden administration aimed at overhauling the student loan system that are in the process of being implemented and won\u2019t be fully realized before the end of the summer, when payments are scheduled to resume.\u00a0<\/p>\n For example, some borrowers have debts that should be wiped off the books, Yu said. The Biden administration has launched several initiatives over the past few years aimed at making it easier for borrowers to access forgiveness already available to them under the law. So far, the Department announced more than $66 billion in discharges for nearly 2.2 million borrowers, including public servants, borrowers with severe disabilities and borrowers who were scammed by their schools.<\/p>\n Still, there are more borrowers eligible to have their debt canceled under these programs who haven\u2019t received relief, Yu said.\u00a0<\/p>\n \u201cThese borrowers are going to be thrown into a system to make payments on loans they shouldn\u2019t be making payments on anymore,\u201d she said<\/p>\n In addition, a promise to make repaying student loans more manageable hasn\u2019t fully materialized. At the same time that President Biden announced the mass debt-cancellation plan, he also unveiled sweeping changes to the repayment system aimed at making student-loan bills more affordable. But the program, which Biden called \u201ca game changer\u201d when he announced it in August, likely won\u2019t be ready by the end of the summer. It\u2019s also been a target for criticism by conservative advocacy groups and Republican members of Congress.\u00a0\u00a0<\/p>\n \u201cThe only way that that could be available to borrowers when payments resume is with another extension,\u201d Yu said.\u00a0\u00a0<\/p>\n The proposed plan, which the Department spokesperson described as \u201cthe most affordable student loan plan in history,\u201d builds on an existing income-driven repayment plan called REPAYE. Eligible borrowers who enroll in REPAYE now will have their monthly payments automatically updated as the terms of the new plan are \u201cfinalized and implemented, starting later this year,\u201d the spokesperson wrote.\u00a0<\/p>\n ***<\/p>\n For many borrowers, the financial burden of resuming student-loan payments will be significant. Thomas Simons, a senior economist at Jefferies, estimates the return to repayment will cost borrowers about $18 billion per month.<\/p>\n \u201cIt\u2019s almost like a tax increase for these people,\u201d Simons said. \u201cThey have to pay it, it doesn\u2019t get them anything tangible right now.\u201d\u00a0<\/p>\n The amount borrowers are saving by not making student loan payments accounts for about 2% of discretionary spending, Simons said. He sees the hits to borrowers\u2019 wallets as analogous to the impact of a payroll tax increase in 2013, which impacted a smaller share of discretionary spending for a larger number of Americans.<\/p>\n \n \u201c<\/span>\u2018It\u2019s almost like a tax increase for these people. They have to pay it, it doesn\u2019t get them anything tangible right now.\u2019\u201d<\/span>\n <\/p>\n
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