The student loan pause is rapidly coming to an end. And this time, President Joe Biden will probably not issue another extension. That means that over 40 million borrowers will be returning to repayment for the first time in over three years — a truly unprecedented situation.
Complicating matters is the fact that, compared to how things were prior to the pause, the student loan landscape will be utterly transformed for many of these borrowers in a variety of ways, from loan servicing to repayment and student loan forgiveness programs. Borrower advocacy groups are concerned that these huge changes, even those that are well-intentioned, could cause confusion and missteps, leading to a spike in defaults.
Here’s what borrowers need to know.
The End of the Student Loan Pause Is Imminent
The student loan pause has been in effect since March 2020. Former President Trump first enacted the pause under emergency authority in response to the Covid-19 pandemic, and Congress then codified it through legislation. The moratorium suspended payments and interest on government-held federal student loans, and halted collections efforts against borrowers in default.
Originally intended to last six months, the Trump administration extended the student loan pause as the pandemic dragged on. After President Biden took office, his administration followed suit with several subsequent short-term extensions. Biden’s most recent extension is tied to the Supreme Court legal battle over his separate student loan forgiveness plan.
As part of the recent bipartisan bill to raise the debt ceiling, Biden managed to preserve his core student debt relief initiatives, including his student loan forgiveness plan. But in negotiations with congressional Republicans, he agreed to codify the end of the student loan pause this summer. Payments are now set to resume after August. With this new legislation tying his hands, Biden is unlikely to be able to continue to pause student loan payments after that, barring a new national emergency.
Huge Updates To Student Loan Servicing
One of the biggest changes to the student loan landscape that awaits borrowers returning to repayment is student loan servicing. Loan servicers are contractors that handle borrower accounts on behalf of the Education Department.
During the last three years, the student loan servicing space has gone through a massive upheaval, with several contracted Education Department servicers leaving the Federal Student Aid system, and other servicers stepping in to take over those accounts. According to a recent report by the Consumer Financial Protection Bureau (CFPB), over 40% of borrowers will have a different loan servicer than the one they had prior to the student loan pause going into effect.
Some of the biggest shifts involve the departure of FedLoan Servicing, which transferred accounts to EdFinancial, MOHELA, and other loan servicers, as well as Navient, which transferred its Education Department accounts to Aidvantage. Great Lakes Higher Education has also been transferring its department portfolio to Nelnet.
Student loan servicers play critical roles. They accept payments, review repayment plan requests, process forms and paperwork, and answer borrowers’ questions. Advocates have warned that given the changes to loan servicing as well as financial constraints, the Education Department’s student loan servicing may buckle under the strain of millions of borrowers simultaneously resuming repayment.
Biden’s New Student Loan Repayment Plan
The Biden administration is in the process of developing a new student loan repayment plan based on income (technically, an overhaul of an existing income-driven repayment plan). According to the most recent proposal, the plan could reduce some borrowers’ monthly payments by 50% or more, and accelerate student loan forgiveness.
The plan has not been finalized yet, however. And it will not be fully available when payments resume later this summer. However, the Education Department is expected to release updated proposed regulations in the coming months, and may start phasing in certain elements of the plan later this year or in 2024. This would give borrowers a potential new path to more affordable payments after the student loan pause ends. But as the new plan is phased in, some of the other available income-driven plans may be phased out, leading to borrower confusion.
Account Adjustment May Lead To Student Loan Forgiveness This Summer
While President Biden’s signature student loan forgiveness plan (which can wipe out up to $20,000 in federal student loan debt) is before the Supreme Court, another massive debt relief program is moving forward.
The IDR Account Adjustment will allow the Education Department to credit borrowers with past loan periods toward their 20- or 25-year student loan forgiveness term under income-driven repayment plans. Borrowers with government-held federal student loans can receive these benefits automatically, even if they are not currently an IDR plan.
Borrowers who receive enough credit to reach the threshold for student loan forgiveness under IDR programs will be eligible for loan discharge. And the department expects to start discharging some balances by this August, just as borrowers are set to resume repayment. So some borrowers who may be expecting to make payments will ultimately not have to.
Other borrowers who receive retroactive IDR credit, but are short of the threshold for student loan forgiveness, will have their accounts updated sometime next year. These borrowers would then need to consider switching to, or continuing with, an IDR plan to make ongoing progress.
New Student Loan Forgiveness Regulations
New student loan forgiveness regulations finalized by the Biden administration will go into effect on July 1. These regulations will impact nearly every major federal student loan forgiveness program.
The new regulations will codify some of the recent, temporary flexibilities for Public Service Loan Forgiveness, relaxing the definitions of qualifying payments and qualifying PSLF employment so that more borrowers can receive PSLF credit and, ultimately, loan forgiveness.
New regulations will also expand access and relief, and ease the application process, for a number of other student loan forgiveness programs. These include 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 a done deal, and should be in effect by the time borrowers return to repayment.
Further Student Loan Forgiveness Reading
Student Loan Forgiveness Update: What Biden’s Latest Move Means For Borrowers
5 Automatic Student Loan Forgiveness Initiatives That Are Not Before The Supreme Court
If The Supreme Court Rejects Biden’s Student Loan Forgiveness Plan, Here Are Other Options
These Democrats Just Joined Republicans To Repeal Student Loan Forgiveness
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