Student Loan Cancellation Debate Continues Amid Service Disruptions


After two senior federal student loan officers announced they would suspend their jobs for the U.S. Department of Education, borrower advocates are pushing President Biden to write off student loan debt.

“ten [million] borrowers won’t even have loan service providers at the end of the year, ”said Debt Collective, a debtors union advocating for large-scale student debt cancellation, in a statement. Tweeter yesterday. “1% of borrowers are making payments right now. We should just write off 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 manages more than one million student loan borrower accounts, announced that it will cease its student loan management operations for the Department of Education here. the end of the year. Granite State’s move followed a similar announcement from the Pennsylvania Higher Education Assistance Authority (PHEAA), which manages FedLoan Servicing. The PHEAA announced earlier in July that it would also be withdrawing from the federal direct student loan management space. FedLoan Servicing manages over eight million student loan borrower accounts for the Department of Education, and is also mandated to administer the public service loan forgiveness and TEACH grant programs.

The abrupt departure of two major student loan managers can cause significant disruption for borrowers. Granite State and FedLoan Servicing collectively manage at least 10 million student loan borrower accounts, or about 25% of the Department of Education’s portfolio. It is not clear whether other student loan managers will also suspend operations in the coming months.

The Biden administration will now have to transfer millions of accounts to new student loan management companies. Such transfers have historically disrupted borrowers, with widespread problems including lost records and credit damage.

The transfers of service would also take place amid the expiration of the current moratorium on federal student loan payments, adding yet another layer of complexity to an already chaotic situation. The student loan payment hiatus, originally enshrined in law through the CARES Act in 2020, was only supposed to last six months, but was repeatedly extended by President Trump and then again by President Biden. The current extension of the moratorium will expire on September 30, 2021.

Advocates of student loan borrowers were already concerned about the ability of student loan managers to handle the resumption of payments before Granite State and FedLoan Servicing announced their withdrawal from loan management operations. “There is a broad consensus among borrowers, advocates, industry, regulators, law enforcement officials and lawmakers that a rush to resume student loan payments is a recipe for disaster and will cause widespread confusion and distress for student loan borrowers, “a coalition of organizations wrote in a letter to President Biden last month. “Before resuming student loan payments, the Department of Education must undertake significant structural reforms, provide real and immediate relief, and cancel a significant amount of federal student debt.” Calls for student debt cancellation only increased amid the current disruption in student loan servicing.

Biden has vowed to order a large student loan forgiveness during his presidential campaign in 2020. But so far, as president, he has favored a more “targeted” approach. Biden has written off hundreds of millions of dollars in student loan debt for borrowers defrauded by some for-profit schools, but that’s only a small fraction of the $ 1.8 trillion in outstanding student loan debt.

Biden expressed some support for the blanket $ 10,000 debt cancellation, but also argued that existing student loan cancellation programs (such as borrower defense against repayment, repayment plans focused on civil service income and loan cancellation) should be improved and expanded. . He did not approve more generous proposals of $ 50,000 or more for student debt cancellation, as advocates and leading Congressional Democrats suggest, including Senator Elizabeth Warren (D-MA) and the Senate Majority Leader Chuck Schumer (D-NY).

However, the Biden administration maintained that the president supported some form of blanket cancellation of student loans. A major question is whether Biden would use executive action to achieve this, given that Congress has not brought forward any student loan cancellation bills that could be passed by both the House and the Senate. Democrats in Congress and some student loan legal experts argued that the Higher Education Act give the president broad powers to cancel student debt. Education officials from former Education Secretary Betsy DeVos disagreed with these findings, however, arguing that the massive cancellation of student loans would be contrary to the intention of Congress.

In April, Biden asked his lawyers at the Department of Education and the Department of Justice to examine whether there was a concrete legal basis for enacting a massive student loan forgiveness using executive action. The Biden administration has not announced any findings from this review and has given no indication that the growing chaos in the student loan department is influencing its decision-making.

Meanwhile, advocates continue their parallel efforts to convince the Biden administration to extend the current pause in student loan payments until 2022, arguing that the upcoming disruption caused by student loan service transfers will be too chaotic for that borrowers can navigate as they resume repayment. .

Further reading

Chances of Biden extending student loan payment hiatus just increased – a lot

Huge upheaval in student loan management: this important loan manager terminates his contract

Elizabeth Warren in Biden: Extending Student Loan Break Until 2022 or Later

Your student loan manager is changing: 7 steps to protect yourself now

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