Here's What Student Loan Repayment Will Look Like This May, After The Payment Pause Ends – Forbes

Student loan repayment will resume for millions of borrowers this May, after the payment pause ends.
Last month, President Biden extended the ongoing student loan payment pause and interest freeze to May 1, 2022. While advocates and policymakers continue to debate additional student loan forgiveness, the Biden administration is moving forward in preparing for the return to repayment this spring.
This week, the Government Accountability Office (GAO) released a report outlining the administration’s unprecedented plans to move 40 million student loan borrowers — most of whom have not made any payments on their loans for nearly two years — back into repayment. Here are the details.
The Department of Education and its contracted loan servicers are expected to bombard borrowers with correspondence about returning to repayment. You may receive multiple emails, letters by mail, and phone calls, and the Department of Education is expected to initiate the bulk of these communications. The Department will also update its website and use social media to notify borrowers about the return to repayment.
The Department will be implementing new flexibilities for the nearly 9 million borrowers who had been repaying their student loans under an income-driven repayment plan prior to the payment pause. According to the GAO, “borrowers with loans in an Income-Driven Repayment plan will not be required to recertify their current income and family size for six months after repayment resumes,” regardless of when their usual annual recertification date is. Borrowers can, of course, always request a recalculation of their payments under an income-driven plan due to changed circumstances at any time.
Importantly, there may be a disconnect between the borrower’s recertification date as listed on their account, and what their actual recertification date is according to their loan servicer. Borrowers may need to contact their loan servicer for clarification.
The Department will also allow borrowers to self-report their income this year, rather than having to submit formal documentation of their income such as a tax return or pay stub. “Borrowers who apply for a new Income-Driven Repayment plan or those already in a plan… can self-certify their current income amount and family size over the phone or through other means offered by their loan servicer instead of submitting an application and documentation of their income, which is typically required,” says the GAO. This option is already available, and 160,000 borrowers have self-reported their income via this method so far. Importantly, this is a temporary flexibility — borrowers will have to resume normal application procedures for income-driven plans in subsequent years.
Student loan servicing has been in turmoil for much of the last year, as several loan servicers contracted with the Department of Education have announced their withdrawal, causing uncertainty for millions of borrowers.
Government-held federal student loans that had been serviced by Navient have been transferred to Aidvantage, the new Direct loan servicing division of Maximus, a company that already contracts with the Department of Education to operate its defaulted loan portfolio. According to the GAO, the transfers from Navient to Aidvantage have been completed as of December.
Granite State Management & Resources, another loan servicer, also exited the Department’s student loan servicing space last year. The Department has completed the transfer of these accounts to other loan servicers as of December, as well.
FedLoan Servicing, which is the Department’s current contractor for the Public Service Loan Forgiveness (PSLF) program, is currently transitioning out of the federal student loan system. The Department has transferred hundreds of thousands of borrower accounts to its other servicers, and later this year, MOHELA (one of those servicers) is expected to take over the PSLF program. According to the GAO, “As of January 2022, [the Department of Education] had transferred 37 percent of student loan accounts from FedLoan Servicing, and [is] expected to complete all transfers by the summer of 2022.”
In anticipation of confusion and uncertainty regarding loan servicing transfers and the return to repayment, several loan servicers are planning on hiring additional employees to staff customer service lines and process borrower requests. But it is unclear how effective additional staffing will be. “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,” wrote the GAO.
Some borrowers are already experiencing long hold times and receiving inaccurate information from loan servicers, leading at least one federal agency to warn loan companies that there could be consequences for illegal conduct.
Over 5 million student loan borrowers were repaying their loans through an auto-debit program prior to the payment pause going into effect. But auto-debit programs will not automatically go back into effect. According to the GAO, these borrowers “will have to confirm that they want to continue automatically paying their student loans when repayment resumes.” In other words, borrowers will have to opt back in to auto-debit — and many borrowers may not yet realize this.
The Department and its contracted loan servicers plan to communicate directly with these borrowers through increased outreach. Borrowers will be “allowed to make their selection by clicking on a link in emails from their loan servicer without logging into their account and through other means, such as over the phone or by logging into their account online,” according to the GAO.
Borrower advocates have argued that the Biden administration should automatically bring borrowers who are currently in default on their federal student loans back into good standing when the payment pause ends this May, in light of a provision in the CARES Act — which initiated the payment pause and collections suspension nearly two years ago — that states that the months of suspended payments can count towards a loan rehabilitation program. Rehabilitation is a federal program that allows borrowers in default to restore their loans to good standing after a minimum of nine monthly payments. The payment pause has been in effect for far more than nine months.
But so far, there does not seem to be any indication that the administration will remove borrowers from default automatically. Instead, the Department plans to undertake additional outreach to connect with these borrowers to help them get out of default through available federal programs. This may prove to be difficult, however. The GAO notes that “the contractor managing borrowers’ defaulted loans initially did not have valid email addresses for about half of the borrowers in default. [The Department] recently began providing the contractor with additional email addresses drawn from various data sources; however, email addresses are still missing for about 25 percent of defaulted borrowers.”
Once the payment pause and collections suspension ends this May, borrowers in default on their federal student loans may be subject to administrative wage garnishment, offset of Social Security benefits, and seizure of federal tax refunds.
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