Education Dept. Preps for Resumption of Student Loan Payments

• President Biden recently extended the pause on student debt collection to May 1.
• Loan servicers still have thousands of jobs to fill to keep up with the anticipated customer-service demands.
• ED promises to be flexible with borrowers in the initial months of repayment.

T-minus 82 days until 42 million borrowers must resume payments on their federal student loans.

While economists predict the resumption of payments on student loans on May 1 will strain the finances of millions of borrowers, a new report shows how the Department of Education (ED) and the seven student loan servicers with which it contracts are also working overtime to prepare for the freeze to end.

According to a report from the U.S. Government Accountability Office (GAO), loan servicers still have thousands of jobs to fill to keep up with the anticipated wave of questions that will come from borrowers when payments resume. All seven servicers said they needed to hire more customer service representatives, and as of October 2021, they still needed to hire over 4,500 employees to keep up with anticipated demand.

"Two of the seven servicers said that the substantial increase in new hires may contribute to negative customer service experiences, as these staff may not have the experience to answer all the unique questions that may arise from resumption of payments," GAO's report stated.

However, servicers stated that there is ample time to hire and train the necessary workers.

That still leaves other work to be done before payments resume.

"Staff may not have the experience to answer all the unique questions that may arise from resumption of payments."

— GAO Congressional Committee Report, Jan. 27, 2022

As stated in the GAO report, there were approximately 45.8 million student loan borrowers that owed a combined $1.61 trillion as of November, according to ED data. However, only about 26.6 million will transition to repayment on May 1. The other borrowers either weren't covered by the pause on payments, are in default, or don't need to make payments because they are in school or within the grace period.

Alerting the 26.6 million people who will need to begin repayment is still a tall task.

According to the GAO report, ED plans to lean on emails to keep borrowers informed about the change.

ED will send emails to all borrowers whose repayments are resuming; those with increased risk of delinquency, borrowers already in default, and people who used automatic payments before the moratorium on debt collection will receive additional communications.

Notably, according to the report, loan servicers identified approximately 50% of federal borrowers to be at risk of delinquency based on ED's definition. That definition includes those who did not complete their program of study, were already delinquent before the freeze, and entered repayment within the past three years.

At-risk borrowers should expect a deluge of emails come May 1. ED promises to send one per day once payments resume.

"It will still be a challenge to motivate borrowers to resume repaying their loans after over two years of payment inactivity."

— GAO Congressional Committee Report, Jan. 27, 2022

"Education officials said that the department has been communicating regularly with borrowers since loan repayment was suspended in March 2020, but they expect it will still be a challenge to motivate borrowers to resume repaying their loans after over two years of payment inactivity," the GAO report stated.

Email outreach will likely be harder for those already in default. According to the GAO report, loan servicers did not have valid email addresses for half of the borrowers in default at the start of the collection freeze. While it gained some ground over the past two years, valid emails are still missing for about 25% of defaulted borrowers.

Borrowers who chose auto-payment before the freeze must manually reenroll if they would like to continue. As of December 2021, 3.3 million of the 5.1 million in auto-payment had already reinstated their automatic payments, per the report.

To aid in the transition process, ED promised not to report missed loan payments to credit rating agencies temporarily. It did not, however, state how long it will avoid these reports.