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On December 22, 2021, after this story was published, President Joe Biden announced the deadline for resuming payments would be extended through May 1, 2022.

On February 1, 2022, barring one last extension, nearly 43 million people with federal student loans will have to start making payments on them again, following a pause during the Covid pandemic. As the deadline looms, advocates are raising alarms that the loan system is not ready for the pressure.

“I think the servicers are going to be overwhelmed,” said Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit that advises and advocates for student borrowers. “Forty-three million people all reenter repayment at the same time. You can’t staff for that.”

She and other advocates fear confusion and worse — checks being sent to wrong addresses, people having to re-enter information, borrowers not even knowing that their loans are due again and thereby risking missing payments — leading to disruptions and mistakes that could carry long-term consequences.

On February 1, 2022, almost 43 million borrowers — accounting for nearly all of the $1.6 trillion in U.S. student loan debt — must resume making payments

The return to repayment, as officials have termed it, ends the pause on payments created by the CARES Act. Students’ federal debts were essentially frozen, with no interest accruing. Now, although the Department of Education is doing behind-the-scenes work to get ready for the transition to requiring payments again, little has been revealed publicly. Some advocates worry that the unclear planning around what is expected of servicers is a sign that borrowers will have a hard time getting the help they need to stay on top of loan repayments or fix servicer errors.

“There isn’t clarity around nuts and bolts things,” said Kyra Taylor, an attorney with the National Consumer Law Center who focuses on student loans. “Like when folks should recertify their [income-driven repayment] plan, what will happen if they fail to make payments because their contact information was wrong or what borrowers should do when servicers make mistakes after their accounts are transitioned.”

On November 29, Richard Cordray, the chief operating officer of the Federal Student Aid arm of the Department of Education, spoke at a conference for financial aid professionals. “We will focus on supporting borrowers and their families with clear communications and with an emphasis on execution by our loan servicers,” said Cordray. But while he outlined plans to monitor wait times and other metrics for servicers, he did not address the more complicated issues borrowers may face as loan payments are once again required.

“I think the servicers are going to be overwhelmed. Forty-three million people all reenter repayment at the same time. You can’t staff for that.” 

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors

Part of student advocates’ anxiety stems from a game of musical chairs being played by the major loan servicers. FedLoan and Navient, which manage more than 14 million borrowers combined, are phasing out their student loan portfolios. While these firms have contracts with the Department of Education until 2022 and 2023, respectively, the transition of borrowers has already begun. Borrowers have reported receiving letters stating that their loans will be transferred to another servicer — in some cases, from FedLoan to Navient. A smaller servicer, Granite State Management & Resources, announced that it will not renew its government contract and will transfer its 1.3 million borrowers as well.

All these borrowers are being added to the rolls of other servicers just as issues are expected to arise for the borrowers they currently have enrolled.

“When accounts are transferred from one servicer to another, problems result,” said William Lund, Maine’s student loan ombudsman and superintendent of the state’s Bureau of Consumer Credit Protection, over email. “Checks are mailed to old addresses, bank account auto-deduction authorizations need to be changed, deals or concessions made by a prior servicer are not honored by the new servicer.”

“As with other servicers, we have a common communications playbook that was provided to us by FSA,” the Federal Student Aid office, said a spokesperson for PHEAA, the Pennsylvania agency that controls FedLoan. A Hechinger Report request to see those guidelines was still being processed, a representative for the Department of Education said.

Navient did not respond to requests for how it plans to handle increased caseloads while it transfers borrowers to other servicers. EdFinancial and Nelnet, two companies receiving student loan cases from other servicers, also did not respond to requests for comment.

“There isn’t clarity around nuts and bolts things.”

Kyra Taylor, attorney with the National Consumer Law Center

There is even the chance that, come February, many borrowers might fail to realize the restart deadline has passed. While the Department of Education has sent emails warning of the looming restart, most borrowers heard of the deadline from their servicers, according to a Student Debt Crisis Center survey of its online followers. A small percentage had not heard about the restart at all. These borrowers will likely see the first signs of trouble with delinquency notices mailed to them after missed payments, but only if they have kept their mailing addresses current throughout the pandemic.

Mayotte and The Institute of Student Loan Advisors plan to roll out social media campaigns to nudge borrowers about the end of the pause, starting with reminders to confirm their contact information with their servicers. That would ensure that “as [servicers] start sending out their communications, the borrowers are getting them,” said Mayotte.

Advocates are bracing for an increase of confused borrowers requesting outside help with their servicers after the pause ends. “We are doing everything we can to prepare ourselves for that increase in borrower demand,” said Lund. His office participates in several interstate and interagency information groups, including a discussion group with student loan advocates from eight other states and Washington, D.C. Scott Kemp, Virginia’s student loan advocate, says his office is promoting a new website ahead of the restart.

Related: PROOF POINTS: Is forgiving college debt the best way to solve the student loan crisis?

The lack of clear guidance for borrowers mirrors President Joe Biden’s silence in recent months on universal student loan cancellation. Despite prominent Democrats’ backing of plans for loan forgiveness, it is unclear how open the administration remains to the idea.

“The time to cancel the debt is now,” said Taylor. “It would reduce the number of folks who are in the federal student loan portfolio and the number of folks who are going to be transferring from one servicer to another.”

The administration has authorized more than $10 billion in cancellations through approved borrower-defense-to-repayment claims, total and permanent disability discharges, and the waiving of certain requirements for the public service loan forgiveness program. But those cancellations cover less than 1 percent of total student loan debt. The waivers also leave other issues with public service loan forgiveness unresolved. For example, certain borrowers, such as social workers, do not currently qualify unless their direct employer is a nonprofit, according to Sarah Butts, director of public policy at the National Association of Social Workers.

“Even just cancellation at $10,000 would help a lot of social workers,” said Butts. “These are the individuals that were on the frontline during the pandemic.”

Related: Interactive: Explore who gains most from canceling student debt

It remains to be seen whether the deadline will bring only momentary chaos or mark the start of an ugly chapter for the borrowers, who hold nearly $1.6 trillion in student loan debt. The pause did little to change the high percentage of federal student loan borrowers in default — according to the College Board, 17 percent of borrowers as of 2021. The number was 18 percent in 2019. Defaults cause the whole amount of a loan to be considered due — in the case of federal student loans this can lead to wages or Social Security payments being garnished — and negatively impact a borrower’s credit history, making it harder to obtain other types of loans, such as a mortgage, in the future.

The pool of defaulted borrowers risks growing after the pause. The percentage of student loan debt that became seriously delinquent — the last step on the path to default — was just 1 percent in the third quarter of 2021, according to data from the New York Federal Reserve, likely all of it private loan debt. That rate is a sharp dip from pre-pandemic years, and will inevitably increase as interest rates rise from zero and repayments are required.

“In the beginning [the restart] will mean a lot of long wait times for paperwork and phone [support] that will eventually even out,” said Mayotte. “But I think we’re going to be watching this and seeing the implications of it over the next five years or more. I think we’ll see it reflected in default rates three or four years from now. I hope I’m wrong.”

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Letters to the Editor

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At The Hechinger Report, we publish thoughtful letters from readers that contribute to the ongoing discussion about the education topics we cover. Please read our guidelines for more information. We will not consider letters that do not contain a full name and valid email address. You may submit news tips or ideas here without a full name, but not letters.

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  1. The chaos looming is not necessarily defaults. ED is making defaults almost disappear through the generous use of forbearances and income driven plans where borrowers pay nothing or next to nothing on their loans for years on end. The real crisis is the accounting charade being played on taxpayers, where the majority of the portfolio is “current” with a zero or de minimus payment, which simply kicks the can on cost recognition. Eventually the cost of those those non-performing loans must be recognized when they get cancelled, and when that comes, perhaps then, we’ll get real reform on lending standards

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