Student Loan Cancellation Debate Continues Amidst Servicer Disruptions

After two main federal student loan servicers introduced that they’d be suspending their work for the U.S. Department of Education, advocates for debtors are pushing President Biden to cancel student loan debt.

“10 [million] borrowers won’t even have loan service providers at the end of the year,” mentioned the Debt Collective, a debtor’s union advocating for broad student debt cancellation, in a Tweet yesterday. “1% of borrowers are making payments right now. We should simply cancel the debt and let it serve as an economic stimulus for 45 [million] people and their communities.”

Earlier this week, Granite State Management and Resources, which handles over one million student loan borrower accounts, introduced that it’s going to stop its student loan servicing operations for the Department of Education by the top of the 12 months. Granite State’s resolution shortly adopted the same announcement by the Pennsylvania Higher Education Assistance Authority (PHEAA), which operates FedLoan Servicing. PHEAA introduced earlier in July that it, too, can be withdrawing from the federal Direct student loan servicing area. FedLoan Servicing manages over eight million student loan borrower accounts for the Department of Education, and can be contracted to manage the Public Service Loan Forgiveness and TEACH Grant applications.

The abrupt departure of two main student loan servicers might trigger substantial disruptions for debtors. Granite State and FedLoan Servicing collectively deal with not less than 10 million student loan borrower accounts — round 25% of the Department of Education’s portfolio. It is unclear whether or not different student loan servicers will likely be suspending their operations within the coming months, as properly.

The Biden administration will now should switch thousands and thousands of accounts to new student loan servicing firms. Such transfers have traditionally been disruptive to debtors, with widespread issues together with misplaced data and credit injury.

The servicing transfers would even be going down within the midst of the expiration of the present moratorium on federal student loan funds, including yet one more layer of complexity to an already chaotic scenario. The student loan cost pause, initially enshrined into legislation by the CARES Act in 2020, was speculated to final solely six months, however was prolonged a number of instances by President Trump after which once more by President Biden. The present extension of the moratorium will expire on September 30, 2021.

Advocates for student loan debtors had been already involved in regards to the skill of student loan servicers to deal with the resumption of funds earlier than Granite State and FedLoan Servicing introduced their withdrawal from loan servicing operations. “There is a broad consensus among borrowers, advocates, industry, regulators, enforcement officials, and lawmakers that a rush to resume student loan payments is a recipe for disaster and will result in widespread confusion and distress for student loan borrowers,” wrote a coalition of organizations in a letter to President Biden final month. “Before resuming payments on student loans, the Department of Education must undertake significant structural reforms, provide real, immediate relief, and cancel a significant amount of federal student debt.” The calls to cancel student loan debt have solely grown within the midst of the present student loan servicing upheaval.

Biden promised to enact broad student loan forgiveness throughout his president marketing campaign in 2020. But as far as President, he has favored a extra “targeted” strategy. Biden has cancelled a whole bunch of thousands and thousands of {dollars} in student loan debt for debtors defrauded by sure for-profit faculties, however this quantities to a small fraction of the $1.8 trillion in excellent student loan debt.

Biden has expressed some help for $10,000 in across-the-board debt cancellation, however has additionally argued that present student loan forgiveness applications (like Borrower Defense to Repayment, income-driven reimbursement plans, and Public Service Loan Forgiveness) needs to be improved and expanded. He has not endorsed extra beneficiant proposals of $50,000 or extra in student debt cancellation, as advised by advocacy teams and main congressional Democrats, together with Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY).

However, the Biden administration has maintained that the President helps some type of broad student loan forgiveness. A serious query is whether or not Biden would use govt motion to realize it, provided that Congress has not superior any student loan forgiveness invoice that might cross each the House and the Senate. Congressional Democrats and a few student loan authorized consultants have argued that the Higher Education Act offers the president with broad authority to cancel student debt. Department of Education officers beneath former Education Secretary Betsy DeVos disagreed with these conclusions, nevertheless, arguing that mass cancellation of student loans can be opposite to Congressional intent.

In April, Biden directed his attorneys on the Department of Education and the Justice Department to assessment whether or not there’s a concrete authorized foundation for enacting mass student loan forgiveness utilizing govt motion. The Biden administration has not introduced any conclusions from this assessment, and has not given any indication that the rising student loan servicing chaos is influencing its decision-making.

Meanwhile, advocates proceed a parallel push to persuade the Biden administration to increase the present pause on student loan funds to someday in 2022, arguing that the approaching disruptions brought on by the student loan servicer transfers will likely be too chaotic for debtors to navigate as they resume reimbursement.

Further Reading

The Chances That Biden Extends The Student Loan Payment Pause Just Went Up — A Lot

Huge Student Loan Servicing Shakeup: This Major Loan Servicer Is Ending Its Contract

Elizabeth Warren To Biden: Extend Student Loan Pause To 2022 Or Later

Your Student Loan Servicer Is Changing: 7 Steps To Protect Yourself Now