End Of The Student Loan Pause Is Imminent

The student loan pause has been in place since March 2020, initially enacted by former President Trump using emergency authority in response to the Covid-19 pandemic. This was later solidified through legislation passed by Congress. The moratorium halted payments and interest on government-held federal student loans and ceased collection efforts against defaulting borrowers.

Initially planned for six months, the pause was extended by the Trump administration as the pandemic persisted. Upon taking office, President Biden continued this trend with several short-term extensions. Biden’s latest extension is connected to the Supreme Court legal battle over his separate student loan forgiveness plan.

In the recent bipartisan bill to raise the debt ceiling, Biden succeeded in maintaining his primary student debt relief initiatives, such as his loan forgiveness plan. However, during negotiations with congressional Republicans, he agreed to set the end of the student loan pause for this summer. Payments are now scheduled to recommence after August. Given the new legislation, it is improbable that Biden will be able to extend the student loan pause beyond that, unless a new national emergency arises.

Significant Changes in Student Loan Servicing

As borrowers prepare to resume repayments, they will encounter one of the most substantial changes in the student loan landscape: student loan servicing. Loan servicers are contractors who manage borrower accounts on behalf of the Department of Education.

Over the past three years, the student loan servicing sector has experienced significant upheaval. Several contracted Department of Education servicers have exited the Federal Student Aid system, and others have stepped in to manage those accounts. A recent report by the Consumer Financial Protection Bureau (CFPB) reveals that more than 40% of borrowers will have a different loan servicer compared to before the student loan pause was implemented.

Major changes include FedLoan Servicing’s departure, with accounts being transferred to EdFinancial, MOHELA, and other loan servicers. Navient also transferred its Department of Education accounts to Aidvantage, while Great Lakes Higher Education has been moving its department portfolio to Nelnet.

Student loan servicers fulfill crucial roles such as accepting payments, reviewing repayment plan requests, processing forms and paperwork, and addressing borrowers’ questions. Advocates have cautioned that due to the alterations in loan servicing and financial constraints, the Department of Education’s student loan servicing might struggle to handle the pressure of millions of borrowers resuming repayments simultaneously.

Biden’s Emerging Student Loan Repayment Plan

The Biden administration is currently working on a new income-based student loan repayment plan (essentially revamping an existing income-driven repayment plan). The latest proposal suggests that this plan could decrease some borrowers’ monthly payments by 50% or more and expedite student loan forgiveness.

However, the plan is not yet finalized and won’t be fully accessible when payments restart later this summer. The Department of Education is expected to release updated proposed regulations in the coming months and may begin implementing certain aspects of the plan later this year or in 2024. This would offer borrowers a potential new path to more affordable payments after the student loan pause concludes. As the new plan is introduced, some existing income-driven plans might be phased out, potentially causing confusion among borrowers.

Account Adjustment Potentially Leading to Student Loan Forgiveness This Summer

While President Biden’s flagship student loan forgiveness plan (which can eliminate up to $20,000 in federal student loan debt) awaits a Supreme Court decision, another significant debt relief program is advancing.

The IDR Account Adjustment will enable the Department of Education to credit borrowers with previous loan periods towards their 20- or 25-year student loan forgiveness term under income-driven repayment plans. Borrowers with government-held federal student loans can automatically receive these benefits, even if they aren’t currently enrolled in an IDR plan.

Borrowers who accumulate enough credit to meet the threshold for student loan forgiveness under IDR programs will be eligible for loan discharge. The department anticipates beginning loan balance discharges by August, coinciding with the resumption of repayments. As a result, some borrowers who were expecting to make payments might not have to.

Other borrowers who obtain retroactive IDR credit but fall short of the forgiveness threshold will have their accounts updated sometime next year. These borrowers should then consider switching to or continuing with an IDR plan to make ongoing progress.

New Student Loan Forgiveness Regulations

New student loan forgiveness regulations established by the Biden administration will take effect on July 1. These regulations will influence almost every major federal student loan forgiveness program.

The new rules will solidify some recent temporary flexibilities for Public Service Loan Forgiveness, easing the definitions of qualifying payments and qualifying PSLF employment, enabling more borrowers to receive PSLF credit and ultimately, loan forgiveness.

Additionally, new regulations will expand access and relief and simplify the application process for other student loan forgiveness programs, such as the Total and Permanent Disability (TPD) discharge program and Borrower Defense to Repayment. Unlike Biden’s new student loan repayment plan, which is still being finalized, these regulatory changes are essentially complete and should be in effect when borrowers return to repayment.