After a more than two-year pause on federal student loan repayments, the moratorium — which former President Donald Trump signed into law in March 2020 and has been extended several times — is set to expire on May 1. If this happens, federal student-borrowers will have to resume repayments. Or maybe they won’t.
In early March, Education Department officials instructed companies that service federal student loans not to send notices to borrowers that their payments would resume in May, Politico first reported. Since the Department is required to contact borrowers at least six times before payment obligations resume, according to NPR, Democratic congressional aides said this notice to loan servicing companies was likely the way to administration to report another extension.
Around the same time, President Joe Biden’s chief of staff, Ron Klain, indicated on a podcast that Biden was considering using his executive power to issue a federal student loan forgiveness “before the break expires, or he will extend the break. (The White House did not respond to TIME’s request for comment on the status of Biden’s decision.)
Lawmakers who have long advocated student loan reform see this latest extension as an opportunity to secure a longer-term solution, several Democratic congressional aides said. “We can’t keep extending,” says a Democratic Senate aide, “without making things right.”
Senator Patty Murray, a Democrat from Washington and chair of the Senate Committee on Health, Education, Labor and Pensions, is leading the fight in Congress. She is pushing the Biden administration to use the time granted by another forbearance period extension to get back into good standing borrowers who were in default before the moratorium began. She also pushed the administration to replace the existing income-driven student loan plans with one that is available to all student borrowers; cap monthly student debt at a maximum of 10% of discretionary income; and to strengthen the Public Service Loan Forgiveness Program (PSLF), which provides conditional loan forgiveness to those who work for nonprofit organizations or federal, state, and local governments, such as public school teachers and the police men.
The Department for Education’s draft proposal, the “expanded income-contingent reimbursement” scheme, which it released in November 2021, could be a starting point, though Murray’s plan goes further. The proposed text appears to seek to build on existing student loan programs that allow eligible borrowers to repay loans on schedules and amounts based on their income and education levels.
Because those changes could all be accomplished through the regulatory rulemaking process, according to a legislative aide, rather than Congress, Biden would not need the approval of congressional Republicans to implement the changes. plans of Murray. “I’ve been very clear to the administration, to the Department of Education,” Murray said during a roundtable on Wednesday, “that we need to put all of this on hold until at least 2023, until what we are really solving are the student loan issues that are in front of us.”
A widely appreciated proposal
The Biden administration’s next steps will affect the finances of some 37 million federal student loan borrowers, for whom payments average $393 a month. Survey results released by UnidosUS, the Student Borrower Protection Center and Data for Progress on March 24 revealed that 59% of likely voters who have student loans expect major changes in their finances when the period of forbearance must end, while only 31% do not expect to have to make major spending adjustments. Another 10% were unsure of the impact it would have on them.
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Democrats may also have November’s midterm elections in mind. Pollsters predict Democrats face an uphill battle to maintain their narrow House and Senate majorities, and voters could look favorably on extended relief for student borrowers. About 70% of voters supported keeping the moratorium from December, according to a Data for Progress survey. Among Democrats, 88% backed him, while 71% of independents and 48% of Republicans felt the same way.
“Ending the pause in student loan repayments is something that a relatively small minority of voters support,” said Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy organization. student loan recipients. “It looks like the people pushing the president to go down this path are his political adversaries, so it’s hard to infer anything other than they’re just people playing politics and trying to score points.
Politics could also be part of the reason Republican lawmakers, including Republican Sen. Richard Burr and GOP Rep. Virginia Foxx, both of North Carolina, are eager for the abstention period to end, despite the that it originated in the Trump administration and its existence is widely popular among voters of all political affiliations. “The Biden administration owes Congress and the American people a plan that will address the challenges facing student loan servicing companies and the confusion of borrowers, and provide a clear timeline for the resumption of student loan repayments,” Foxx said in a January statement. “The Biden administration has had a year to come up with a plan, it’s time to stop dithering.”
Progressives, meanwhile, continue to push for the cancellation of tens of thousands of dollars in federal student loans via executive branch action. Senate Majority Leader Chuck Schumer, Sen. Elizabeth Warren of Massachusetts and Rep. Ayanna Pressley of Massachusetts wrote a letter to Biden in December asking him to forgive up to $50,000 in federal student loans. While Biden has so far resisted the idea, he has urged Congress to pass a pardoning bill for up to $10,000.
Loan companies want loan repayments to resume
However, it’s not just Republicans who want the abstention period to end. Banks and private loan companies, which make money when people refinance their federal student loans into private loans to secure interest rates or repayment plans that suit them better, do so too. Since federal interest rates on student loans were set at 0% and payments were halted during the forbearance period, fewer people converted their federal loans to private loans.
Some of the lenders who would normally make more money from converting federal student loans to private loans increased the amount they were spending to lobby Congress compared to pre-pandemic years. Sallie Mae Corp, for example, spent $1,760,000 on lobbying in 2021, according to government transparency watchdog Open Secrets, compared to $1,290,000 in 2018 and $1,310,000 in 2019. SoFi Technologies , another private loan provider, spent $460,000 on lobbying in 2021, down from $220,000. in 2018 and $160,000 in 2020.
“Right now, there’s really no incentive for borrowers to refinance,” says a Democratic House aide. “Banks big and small are fed up.”
Ending the forbearance now would please private lenders, but it would be to the detriment of indebted borrowers in more ways than one. Three of the largest companies that previously serviced federal loans, including Navient and Granite State, stopped doing so in 2021. This means borrowers who had loans serviced through these companies had their balances transferred to new companies, whether they like it or not. It was not transparent. Amid the moratorium, Pierce says some borrowers received bills when no payments were due, received incorrect information about the status of the payment pause, and had difficulty accessing their loan information. student when they tried to log into the portal of the new company where their loans were transferred. “If the system can’t handle a transfer like this when nobody has to pay the bills,” says Pierce, “what does it mean when 35 million people have bills to pay?”
A Senate aide argues that the solution to these problems is clear. “Before resuming payments,” she says, “we need to make sure they resume payments in a system that works.”
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