- The student-loan payment pause is officially over.
- Even before it ended, borrowers were experiencing issues and mistakes with repayment.
The student-loan payment pause is over — and the next chapter for borrowers won't be easy.
After more than three years, President Joe Biden officially ended the pandemic pause on federal student-loan payments, with waived interest, on Friday. That means that millions of borrowers will now start seeing interest accumulate on their balances, and in October, their first payment required in years will come due.
Borrowers have already reported issues with repayment. One borrower previously told Insider that her student-loan company projected a $49,000 monthly payment — which the company admitted was a mistake — but she's still waiting for her statement to be corrected. To make matters worse, it's been increasingly difficult for borrowers to get ahold of the companies that manage their debt. One servicer, Nelnet, has had to shut down its call center and website multiple times following an influx of requests from borrowers, leaving many unable to access their accounts and determine their repayment schedules.
Carolyn Fast, a senior fellow at The Century Foundation who focuses on higher-education policy, told Insider that some borrowers have never had to make payments on their loans because of the pandemic pause, and after three years, the Education Department has "a really big job" in facilitating this transition.
"There's a lot of confusion and questions that borrowers have about what their obligations and options are right now," Fast said. "Many are worried that it could be a perfect storm of bureaucratic obstacles for borrowers."
Those obstacles will likely include a lack of resources and funding for the Education Department, paperwork issues for borrowers, and inflation that could strain borrowers' budgets as they attempt to foot another monthly bill. An Education Department spokesperson recently told Insider that it will continue to regularly communicate with borrowers and share repayment options, including the new SAVE income-driven repayment plan, intended to make payments more affordable. The agency also said it remains in frequent contact with servicers to ensure they directly communicate repayment information to borrowers.
While "they're trying to do whatever they can to make sure it runs smoothly," Fast said, "it's still going to be a huge challenge for the department." Here are the challenges borrowers could encounter as they begin to make payments again this fall.
'This could be a huge shock to their budgets'
While Biden intended for borrowers to restart payments with a reduction to their balances, the Supreme Court in June struck down his plan to cancel up to $20,000 in federal student debt. Stephanie Hall, the acting senior director of higher education policy at the Center for American Progress, told Insider that Biden's debt-relief plan "would have actually cleared out a certain number of borrowers from the system, which would have lightened the projected amount of need for servicer hours and for call-center hours for the primary services."
"We have more borrowers in the system currently than what the Biden administration might have previously projected for this point," Hall said.
Another key issue Hall said she's keeping an eye on is the impact the resumption will have on borrowers' budgets, especially with high inflation levels. While inflation has slowed in recent months, the latest Consumer Price Index reading, which measures inflation, rose 3.2% year over year in July, which could pose difficulties for borrowers as they figure out how to afford an extra monthly payment on top of their other usual expenses.
"This could be a huge shock to their budgets," Hall said. "Before the pandemic, borrowers were already choosing between meeting their own basic needs and making their student-loan payments. But the pandemic pause has gone on for so long that household budgets really changed during the past three years."
"Maybe before the pause, they couldn't get a mortgage and now they have one, or they took on other forms of personal debt, and then inflation has also impacted how far our budget can stretch, too," Hall added. "So I think all of those factors on top of now turning the student-loan system back on and having this additional bill come to you monthly is going to make a great deal of folks have to make some difficult choices in their budgets."
The Education Department needs more money
It all comes down to money, and the Education Department needs more of it. Scott Buchanan, the executive director of the Student Loan Servicing Alliance — a group that represents federal servicers — previously told Insider that "there's only a limited amount of resources to provide staffing and when we have these huge spikes because of some sort of communications, then there's not an ability to really provide any more resources, because the government doesn't have those resources."
It's something Biden's administration is well aware of. The Office of Management and Budget's latest funding request to Congress noted that without increased funding, "basic ongoing activities including loan servicing operations, Free Application for Federal Student Aid application processing, common origination and disbursement activities, data center hosting, and call center operations will be impeded."
However, Republicans' recent budget proposal included a funding cut for Federal Student Aid, suggesting more challenges to come in administering repayment and relief programs for borrowers. "The more resource-strapped a servicer is and the more resource-strapped FSA is, the heightened concerns we have for that treatment of borrowers and just for the accuracy on the part of servicers giving information to borrowers," Hall said.
Fast also noted that minimal resources will make it more difficult for the department to ensure servicers are communicating with borrowers effectively, saying that "they don't have a lot in their budget to put toward this sort of oversight that they're going to need to do."
To give borrowers some relief, the department announced a 12-month "on-ramp" period starting in October, during which missed payments will not be reported to credit agencies. In the meantime, the department recommends borrowers make their payments and wait for Biden's new plan for broad debt relief.