The moratorium on federal student loan payments is slated to end on January 31, 2022. But the Department of Education has offered very little information on how it plans to handle the end of the payment suspension, which has been ongoing since March 2020. It took a Freedom of Information Act request by Politico to finally release the outline of how the Department plans to transition over 20 million borrowers back into repayment.
The student loan payment pause should have ended long ago. But the transition back into repayment, unprecedented in the loan program’s 63-year history, was always going to be a challenge. Those millions of borrowers need to be aware that they need to start making payments again, and those who might have trouble making ends meet should be connected with existing safety-net programs.
The Department of Education’s current draft plan would offer borrowers a 90-day grace period after January 31 to get back into repayment. Missed payments during those 90 days won’t drag borrowers into delinquency or be reported to credit agencies. (But unlike the current suspension, missed payments during the grace period won’t count towards PSLF or other loan forgiveness programs.)
In addition, the Department will instruct loan servicers to pursue a targeted outreach campaign to borrowers at risk of default, including those who dropped out of college or were delinquent before the suspension began. The Department may also allow servicers to enroll borrowers in income-based repayment plans over the phone (rather than submitting a form). Ease of access to income-based repayment is linked to lower delinquency rates.
These policies haven’t been formally announced yet, but anything to aid the transition back into normal repayment is welcome. The end of the payment suspension can’t come soon enough.
The student loan payment suspension costs taxpayers $52 billion per year, twice what the federal government spends on Pell Grants and nearly five times the annual cost of President Biden’s free community college plan. As they tend to have bigger loans, high earners receive almost all the benefits. The suspension is one of the most poorly-targeted relief programs enacted in the wake of the Covid-19 pandemic.
It’s good that the Department of Education is at least considering how to end the payment moratorium. But January 31 is approaching quickly, and a transition plan should have been in place months ago. Finalizing that plan should be the Department’s top priority. Better late than never.