After two major federal student loan servicers announced that they would be suspending their work for the U.S. Department of Education, advocates for borrowers 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,” said 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 a million student loan borrower accounts, announced that it will cease its student loan servicing operations for the Department of Education by the end of the year. Granite State’s decision shortly followed a similar announcement by the Pennsylvania Higher Education Assistance Authority (PHEAA), which operates FedLoan Servicing. PHEAA announced earlier in July that it, too, would be withdrawing from the federal Direct student loan servicing space. FedLoan Servicing manages over eight million student loan borrower accounts for the Department of Education, and is also contracted to administer the Public Service Loan Forgiveness and TEACH Grant programs.
The abrupt departure of two major student loan servicers may cause substantial disruptions for borrowers. Granite State and FedLoan Servicing collectively handle at least 10 million student loan borrower accounts — around 25% of the Department of Education’s portfolio. It is unclear whether other student loan servicers will be suspending their operations in the coming months, as well.
The Biden administration will now have to transfer millions of accounts to new student loan servicing companies. Such transfers have historically been disruptive to borrowers, with widespread problems including lost records and credit damage.
The servicing transfers would also be taking place in the midst of 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 pause, originally enshrined into law by the CARES Act in 2020, was supposed to last only six months, but was extended several times by President Trump and then again by President Biden. The current extension of the moratorium will expire on September 30, 2021.
Advocates for student loan borrowers were already concerned about the ability of student loan servicers to handle the resumption of payments before Granite State and FedLoan Servicing announced 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 last 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 only grown in the midst of the current student loan servicing upheaval.
Biden promised to enact broad student loan forgiveness during his president campaign in 2020. But so far as President, he has favored a more “targeted” approach. Biden has cancelled hundreds of millions of dollars in student loan debt for borrowers defrauded by certain for-profit schools, but this amounts to a small fraction of the $1.8 trillion in outstanding student loan debt.
Biden has expressed some support for $10,000 in across-the-board debt cancellation, but has also argued that existing student loan forgiveness programs (like Borrower Defense to Repayment, income-driven repayment plans, and Public Service Loan Forgiveness) should be improved and expanded. He has not endorsed more generous proposals of $50,000 or more in student debt cancellation, as suggested by advocacy groups and leading congressional Democrats, including Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY).
However, the Biden administration has maintained that the President supports some form of broad student loan forgiveness. A major question is whether Biden would use executive action to achieve it, given that Congress has not advanced any student loan forgiveness bill that could pass both the House and the Senate. Congressional Democrats and some student loan legal experts have argued that the Higher Education Act provides the president with broad authority to cancel student debt. Department of Education officials under former Education Secretary Betsy DeVos disagreed with these conclusions, however, arguing that mass cancellation of student loans would be contrary to Congressional intent.
In April, Biden directed his attorneys at the Department of Education and the Justice Department to review whether there is a concrete legal basis for enacting mass student loan forgiveness using executive action. The Biden administration has not announced any conclusions from this review, and has not given any indication that the growing student loan servicing chaos is influencing its decision-making.
Meanwhile, advocates continue a parallel push to convince the Biden administration to extend the current pause on student loan payments to sometime in 2022, arguing that the coming disruptions caused by the student loan servicer transfers will be too chaotic for borrowers to navigate as they resume repayment.
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