Millions of student loan borrowers are only weeks away from their federal student loan payments resuming after a two-year pause under the CARES Act, which suspended most federal student loan payments, interest and collections efforts since March 2020.
Extend the payment pause past May
President Biden’s most recent extension is set to end on August 31, 2022. However, administration officials have suggested that an additional extension (and potentially other forms of student loan relief) is under consideration.
Senator Patty Murray (D-WA), who chairs the powerful Senate Health, Education, Labor and Pensions (HELP) Committee, released a detailed proposal last week urging Biden to extend the student loan payment pause and take specific steps to reform the student loan system and help struggling borrowers.
“When I talk to student loan borrowers… one thing is painfully clear: the student loan system is broken,” said Senator Murray in a statement last week. “It is ruining lives and holding people back. Borrowers are struggling with rising costs, struggling to get their feet back under them after public health and economic crises, and struggling with a broken student loan system — and all this is felt especially hard by borrowers of color.”
Murray cited well-documented problems currently afflicting the federal student loan system that could impede a return to repayment this May, including long hold times, misleading information provided by loan servicers and increasingly problematic processing delays.
“These aren’t just inconveniences,” Murray said. “We’re talking about a policy failure that has financial consequences that keep people in jobs they don’t like, prevent them from buying houses or starting families — or force them to choose between making their loan payments and paying for groceries, rent, or health care. This loan system is unacceptable, and we can fix it.”
Murray called on Biden to extend the student loan payment pause to 2023 and urged him to use that time to enact four specific student loan reforms.
Improve income-driven repayment
Murray urged Biden to create and finalize a new income-driven repayment (IDR) plan for borrowers that would be more affordable and easier to access than the options that are currently available.
Last year, the Biden administration unveiled a proposal for a new income-driven plan that it tentatively is calling the “Expanded Income-Contingent Repayment” (EICR) Plan. But the proposal was widely panned by advocates as it would exclude graduate school borrowers and Parent PLUS borrowers and relied on a complicated, two-tier repayment formula.
Borrower advocates have been calling on the Biden administration to scrap EICR and create an entirely distinct income-driven plan that caps payments at no more than 10% of discretionary income, is available to all borrowers and has more favorable repayment terms than the current IDR plans such as ICR, IBR, PAYE and REPAYE.
Murray specifically called for the current IDR plans to be phased out. However, it is unclear if Biden would have authority to do that, given that at least some of the plans were enacted through Congressional legislation.
Extend the Limited PSLF Waiver
Last October, the Biden administration sought to fix problems associated with the Public Service Loan Forgiveness (PSLF) program by creating the “Limited PSLF Waiver.” Under the waiver, borrowers can temporarily get past periods of repayment counted towards loan forgiveness, even if past payments were made on non-qualifying federal loans or under the “wrong” repayment plan.
But while the administration has been touting billions of dollars of relief approved so far under the waiver initiative, the rollout has been bumpy, with borrowers submitting complaints about processing delays, long call hold times and receiving misleading information from their loans servicers.
With the waiver set to end on October 31 of this year, Senator Murray called for an extension of the temporary relief “to ensure public servants get the debt forgiveness they are owed and finalizing a new plan aligned with what Senate Democrats have already called for — to make it easier for payments to qualify and close donut holes.”
Automatically rehabilitate borrowers in default
Under the provisions of the CARES Act, the months of suspended payments can count towards loan rehabilitation – a federal program that allows borrowers in default on their federal student loans to cure their defaults and restore their loans to good standing. The program requires a minimum of nine timely monthly payments. The CARES Act provides that the months of paused payments can qualify a borrower for rehabilitation as if required rehabilitation payments were being made.
But borrowers seeking rehabilitation must formally enroll in the program by submitting financial information and signing a rehabilitation agreement. This requirement is not generally communicated to borrowers because the CARES Act also suspends collections efforts — including communication with borrowers about their default resolution options.
Furthermore, the Department of Education recently ended its contracts with most outside third-party debt collection agencies, further hindering its ability to correspond with borrowers about their options.
Senator Murray echoed prior calls by borrower advocates that the Biden administration should automatically rehabilitate borrowers in default on their federal student loans since the suspended months count anyway, and the suspension has lasted for far longer than the nine months required for the rehabilitation program. Murray noted that rehabilitation could also improve a borrower’s credit score by deleting the credit reference to the earlier default – an important feature that many borrowers may not know.
Enact broad student loan forgiveness
Finally, Senator Murray urged President Biden to use executive action to enact widespread targeted student loan forgiveness. Murray suggested that Biden prioritize “those struggling the most, including borrowers of color, borrowers with low incomes, borrowers who have been trapped in repayment for over 20 years, and borrowers who left college with no credential.”
While Biden expressed support for student loan forgiveness during his 2020 presidential campaign, he has opposed calls to cancel $50,000 or more in student loan debt for every borrower, and he has shown skepticism that there is sufficient legal authority for a President to cancel student loan debt unilaterally, without express Congressional authorization. Proponents of widespread student loan forgiveness argue that existing federal statutes already give the President broad authority to wipe out borrowers’ federal student loan debts.
Last year, Biden directed the Education Department and Justice Department to draft formal legal memos evaluating his potential authority to forgive student loan debt. But the conclusions of those memos have not been publicly released.
Top Biden officials have recently hinted that some form of executive action-based student loan forgiveness remains under consideration. “Whether or not there is some executive action [on] student debt forgiveness when the payments resume is a decision we’re going to take before the payments resume,” said White House Chief of Staff Ronald Klain earlier this month.