Senators Inquire About Federal Student Loan Servicers’ Ability to Resume Repayments
On December 2, Senators Elizabeth Warren (D-Mass), Chris Van Hollen (D-MD), Richard Blumenthal (D-CT) and Tina Smith (D-MN) contacted four federal loan servicers. The goal of this communication was to ask the servicers to reveal the steps they plan to use to facilitate federal student loan repayment resuming on January 31, 2022.
Photo Courtesy: Winslow Townson/Associated Press
On March 26, 2020, during the onset of the COVID-19 pandemic, repayments of federal student loan debt were suspended for 6 months. This freeze was extended multiple times, and the current suspension is set to lift on January 31, 2022. The Department of Education has highlighted the finality of this extension, and it seems almost certain that student loan repayments will resume in the beginning of next year.
In the 63-year history of federal student loans, they have not once been suspended before 2020. The resumption of these loans is a historic event and comes on the heels of increased public scrutiny of the student debt crisis in recent years. Millions of borrowers owing almost $1.6 trillion in federal student loan debt will resume paying their loans all at once. This type of unprecedented event has room for many contingencies, and it is even further complicated by the fact that half of these loans will be transferred to other lenders – a situation that can create even more chaos. The action by these 4 senators seeks to assess the preparedness of the lenders to begin collecting loans again while also upholding fairness standards for the borrowers.
In Massachusetts and Boston, the student debt crisis is exceptionally relevant due to the commonwealth’s high number of colleges and universities. As of 2020, Boston had a total 139,000 students enrolled in 4-year colleges and universities, making it the largest "college-town" in the nation. As of the 2020 census, Boston had a total population of 692,600 (although this was disputed by former Acting Mayor Kim Janey, who believed that the census missed about 5,000 students). This adds up to a lot of debt. Borrowers in the state of Massachusetts owe a total of $35.9 billion divided among 1 million borrowers. This means that Massachusetts residents hold 2.1% of the total student loan debt, which is slightly disproportionate to its size, making up 1.8% of the total population of the United States. Even more concerning is that 56% of graduates in Massachusetts held debt when they graduate, and that debt averages $33,457. This, combined with the extremely high ratio of students to residents, means that the student debt crisis is a uniquely intense challenge for Boston.
According to the new analysis from from the Roosevelt Institute, which was provided to the members of Congress at their request, if the payments of federal student loans resume as scheduled on February 1, 2022, approximately $7 billion a month and $85 billion annually will be stripped from over 18 million student loan borrowers’ budgets.
With the enormity of the incoming resumption of student loans, it is essential that lenders and servicers are fully prepared to resume payments. This is not the first time that concerns about the preparedness of these institutions have been raised. In July, Senators Elizabeth Warren and Ed Markey (D-MA) wrote a letter to President Joe Biden encouraging him to extend the pause on student loan repayments until at least March 2022 because the companies were not prepared to resume loan repayments, which at that time was slated for September. The date of resumption was subsequently postponed until January, two months earlier than the senators requested.
This latest inquiry into the servicers' ability to begin repayment is much closer to the expected date of resumption, meaning it will be much harder for a new extension to be issued. However, if the companies indicate that they are still not prepared to begin collecting loans, it is possible that payment resumption will be postponed again. Regardless, this pause and resumption of the payment of student loans are highly important events that will have a massive impact on the life of residents of the city of Boston, as well as the country at large.