Over 40 million student loan borrowers are facing a return to repayment after an unprecedented three year hiatus. The student loan pause, implemented in response to the Covid-19 pandemic, is formally expiring at the end of August. Student loan payments resume shortly thereafter, with the first bills expected to be due in October.
The Biden administration has been taking steps to ease the transition back to repayment. Officials announced new flexibilities for the first 12 months of student loan payments resuming that are designed to reduce delinquencies, defaults, and other negative consequences associated with missing payments. And the Education Department is implementing a number of new initiatives, including a more affordable repayment plan, interest benefits, and new student loan forgiveness avenues.
But with the return student loan repayment weeks away, borrowers are already encountering significant problems with online applications, loan servicing, and accessing key benefits. While there is still time for some of these issues to be resolved, this does not bode well for millions of borrowers simultaneously returning to repayment after such a long moratorium — something which has never happened before.
Here’s the latest.
Student Loan Payment Plan Application Problems
The Biden administration is rolling out the new SAVE plan, a brand new income-driven repayment program that is designed to be more affordable than currently-available options. While Direct loan borrowers presently enrolled in the REPAYE plan will be automatically transitioned into SAVE, other borrowers need to apply.
The Education Department just rolled out a new IDR application that allows borrowers to directly select SAVE. But there are problems. In some cases, the application only allows borrowers to choose SAVE, not any other IDR plan. The new application also crashes at times. And it is also still requiring spousal income information for married borrowers who filed taxes as married-filing-separately, even though spousal information is supposed to be excluded (unlike for the REPAYE plan).
Student Loan Consolidation Application Issues
The administration has also updated the Direct loan consolidation application, which includes the new IDR application featuring SAVE. Some borrowers with FFEL-program loans will need to consolidate those loans into the Direct loan program to enroll in SAVE or access other federal student loan forgiveness and relief programs, like PSLF or the IDR Account Adjustment.
But the old Direct consolidation application web portal is no longer active and does not redirect to the new consolidation portal. The Education Department has not been publicizing this change, which may make it difficult for borrowers to navigate to the online consolidation application site. Borrowers who do manage to consolidate online may then encounter the same IDR application problems described above.
Student Loan Forgiveness Application Issues
New regulations went into effect in July that impact a number of other federal student loan forgiveness and debt relief programs. But some of these programs are still displaying outdated applications. For example, the official website for the Total and Permanent Disability (TPD) discharge program still uses the now-outdated TPD application that does not reflect the new regulations and associated flexibilities, and may be rejected as expired.
In addition, borrowers applying for the Borrower Defense to Repayment program can still complete an application. But after a federal appeals court blocked the Biden administration’s new Borrower Defense regulations that went into effect July 1, the fate of newly-submitted applications remains uncertain.
“On Aug. 7, 2023, a federal court delayed the effective date of the latest rule governing borrower defense and related student loan discharges until at least November,” says the Education Department in an updated message on the Borrower Defense website. “ED is evaluating the impact of the court’s order and will provide more information soon.”
Student Loan Servicing Problems
Borrowers are also encountering a wide array of problems related to student loan servicing. Up to 30 million borrowers have experienced loan servicing changes since the student loan pause first went into effect. That alone could cause problems, as loan servicing changes have historically led to issues like lost records and missed payments.
But loan servicers are also facing a budget crunch, coupled with the unprecedented return to repayment. That is resulting in numerous issues:
- MOHELA is still facing a backlog of PSLF applications related to the Limited PSLF Waiver and IDR Account Adjustment.
- Some borrowers who applied for IDR during the student loan pause, and then had a servicer change after they were approved, are not seeing their IDR approval carry over to the new servicer. This is resulting in some borrowers having to reapply for IDR. Other borrowers are reporting IDR payment calculation errors by their loan servicers.
- Borrowers are experiencing long call hold times, with some loan servicers seemingly completely overwhelmed by call volume. This may result in borrowers not being able to get answers to critical questions, or get problems or errors corrected.
- In a rapidly-changing environment, it can take time for information to be disseminated from the Education Department to its contracted loan servicers, and ultimately to borrowers. The result is that some borrowers are reporting that servicers don’t have the most up-to-date information on key federal student debt relief programs, or are misinforming borrowers of their options.
Multiple Student Loan Repayment Deadlines
In addition to the systematic and technical problems, borrowers are also facing a host of rapidly approaching deadlines. The Education Department is recommending that borrowers take care of a number of tasks before the end of August including confirming your current loan servicer, creating an online account with that servicer, updating your contact information, applying for an IDR plan, and confirming or enrolling in auto-debit.
While borrowers will not be penalized for missing payments during the first 12 months after the student loan pause ends — a period the Biden administration is calling the “on-ramp” — missed payments will not count toward student loan forgiveness under IDR or PSLF.
Further Student Loan Forgiveness Reading
To Save $1,000 Per Year On Student Loan Payments, Do This, Says Education Department
Student Loan Pause Extension? New Proposal Would Eliminate Interest For Current Borrowers
Student Loan Forgiveness Just Got Easier For These Borrowers
5 Student Loan Forgiveness Updates As Payments Resume In A Matter Of Weeks
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