Student-loan companies will scramble to adjust and some borrowers could fall into delinquency if Biden extends the payment pause on 'grossly insufficient notice', servicing group says

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Student-loan companies will scramble to adjust and some borrowers could fall into delinquency if Biden extends the payment pause on 'grossly insufficient notice', servicing group says
President Joe Biden.JIM WATSON/POOL/AFP via Getty Images
  • Student-loan payments are set to resume in just over a week.
  • The head of a loan servicing group said companies might not be able to implement changes effectively on such short notice.
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Even if President Joe Biden extends the student-loan payment pause, the companies that service those loans say they might not be able to account for that change in a timely manner.

In April, Biden extended the federal pause on student-loan payments for his fourth time, through August 31. He is expected to announce an extension of that pause — along with broad student-loan forgiveness — on Wednesday. Both of those announcements come just a week before payments were scheduled to resume, and with loan servicers receiving very little guidance leading up to this point, they have notified the department that any announcement will likely not be implemented as smoothly as it might hope.

Scott Buchanan, the executive director of the Student Loan Servicing Alliance — a group that represents federal loan servicers — wrote a letter to Education Secretary Miguel Cardona on Monday to inform him "that any announcement at this late date, less than ten days before the scheduled resumption of September 1, risks operational disruptions."

"We are now ten days out from the scheduled resumption for 35 million borrowers, and – as servicers have warned for weeks would be the case – it may not be possible to ensure that a full and complete delay in resumption could be effectuated systemically by September 1 for every borrower without incident," Buchanan wrote. "Ten days is grossly insufficient notice to reprogram the massive and interwoven systems that handle loan accounts, provide appropriate system testing time, and also construct and implement revised communication plans."

He added that if payments do resume on September 1, "millions of borrowers will be confused, some caught massively off guard, some may go delinquent unnecessarily, and it may take months to resolve those issues."

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In July, the Education Department instructed loan companies to halt messaging to borrowers surrounding repayment. But as Buchanan referenced, there have already been communication issues given that September 1 is still the anticipated restart date. For example, Insider obtained evidence on Tuesday that Aidvantage, run by student-loan company Maximus, had mistakenly notified some borrowers that they have payments due in September.

A Maximus spokesperson told Insider apologies were sent to those impacted borrowers, but Insider heard from borrowers who said they never received an apology and their accounts are still reflecting payments due. That's why Democratic lawmakers have been pushing for debt cancellation alongside an extension of the payment pause to ensure the department, and loan companies, will have enough time to implement relief before another monthly bill comes due.

The department has not yet commented on issues that might arise with a late announcement of relief, and Buchanan said that while servicers will do their best to "quickly and efficiently" make any changes, "there may be servicing issues that impact borrowers and may require material remediation."

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