Big headache for student loan borrowers could be on the horizon.
Its monthly payments could resume as soon as this summer after a three-year hiatus. And the federal agency that oversees the student loan system is operating on the same budget as last year — which could complicate any efforts to ensure a smooth repayment process, as well as the agency’s plans to overhaul the system.
When Congress approved the government’s annual budget in December, the Federal Student Aid Office received about $800 million less than the Biden administration requested. After granting steady increases over the past few years, lawmakers left funding to run the bureau unchanged at about $2 billion.
Republican lawmakers noted that Congress failed to allocate new funds to implement President Joe Biden’s controversial student-loan forgiveness plan, which is currently being heard in court. If the Supreme Court lets the forgiveness program move forward, it would also be a big boost for the federal student union.
“I think it’s particularly unfortunate for borrowers that the political battle over loan forgiveness this year has resulted in blanket funding,” said Jonathan Fansmith, associate vice president for government relations at the American Council on Education, a college advocacy group and universities.
“Wherever the cracks are seen, borrowers will be affected,” Fansmith added.
The Federal Student Aid Office, which employs about 1,400 people and provides about $112 billion annually in scholarship, work-study, and loan funding, is busy.
The office oversees the $1.6 trillion federal student loan portfolio, but has also undertaken additional work to revise the federal student aid application form, known as FAFSA, and revise some federal student loan programs. Last week, the company announced a plan to make significant changes to its income-based payback program this year.
“I certainly think that some of their priorities are either not getting done in the timeline they originally hoped for, or not getting done at all,” said Michele Shepard, senior director of college affordability at the Institute for College Access and Success. an advocacy group.
But the Department of Education says it can still meet the deadlines it has set.
“The hundreds of millions of dollars of shortfall will obviously impact these important bipartisan priorities, but we will continue to do whatever we can with the resources available to better serve students and protect taxpayers’ money,” the department said in a statement Statement sent to CNN.
Nevertheless, the Federal Office for Student Services would do more work with less money. Here are some of the tasks expected this year:
Federal student loan borrowers have not had to make payments since March 2020, thanks to a pandemic-related hiatus extended multiple times by both the Trump and Biden administrations.
Most recently, Biden extended the pause after his student loan forgiveness program was halted by federal courts. The administration had told borrowers that debt relief would be granted before payments resumed.
The payment pause now lasts up to 60 days after the settlement of the dispute over Biden’s student loan forgiveness program. If the program is not implemented and the dispute is not resolved by June 30, payments will resume 60 days after that.
Getting some 44 million borrowers to repay at once is an unprecedented feat. Many people may be confused about how much they owe, when to pay, and how. Failure to pay may result in monetary charges.
The government hires several external organizations such as MOHELA and Nelnet to manage government student loans. However, it is up to the Federal Office for Student Aid to communicate with the service providers when and how payments will resume.
“To be nice, the quality of student loan servicing wasn’t outstanding,” Fansmith said.
“When you multiply all of these problems, even if they are small, by 44 million borrowers, it’s a massive national problem,” he added.
In late February, the Supreme Court will hear arguments in two cases regarding Biden’s student loan forgiveness program, which could bring debt relief of up to $20,000 to millions of low- and middle-income borrowers.
A decision on whether the program is legal and can proceed is expected by June. Until then, it will be suspended and no debt will be forgiven under the program.
Biden’s student loan forgiveness program has faced several legal challenges since the president announced it in August. The Department of Education had received about 26 million debt relief requests by the time a federal district court judge ended the program on Nov. 10.
The legal back-and-forth has created confusion among borrowers about the status of the program. Adding to the uncertainty, about 9 million people received an email from the Department of Education in the fall that falsely stated that their student loan forgiveness application had been approved.
The Biden administration plans to revise some of its student loan repayment programs, and the Federal Student Aid Office is tasked with rolling out those programs.
In July, the Department of Education plans permanent changes to the government loan forgiveness program to make it easier for government employees and nonprofits to qualify for debt relief after 10 years of payment. The program has long been plagued by credit management problems.
Big changes to the department’s income-based repayment plans are also in the works, aimed at reducing monthly debt loads as well as the total amount borrowers pay over the life of their loans.
The new rules are expected to limit payments to 5% of a borrower’s discretionary income, compared to 10% being offered under most current income-based plans. As a result, individual borrowers earning less than $30,600 per year would not have to make payments under the proposal, aside from the current $24,000 threshold.
The changes would also award remaining balances after 10 years of repayment instead of 20 or 25 years and would cover the borrower’s unpaid monthly interest.
The Department of Education said last week it expects to start implementing some of those provisions later this year.
Each year, as part of its normal work, the Federal Student Assistance Office processes millions of student FAFSA applications. The form is usually released in October for the following academic year.
Every college student must complete the FAFSA to qualify for federal student loans, scholarships, and work-study grants. But it has long been criticized for being too long and complicated.
Congress passed legislation in 2021 simplifying the FAFSA form, and the Federal Student Assistance Office has been working to implement the changes — which financial aid experts hope will be complete before October this year.
The Office should have had the changes made by now, but the effective date was pushed back by a year.