Arguably, federal student loan servicing has always been a mess… so predicting issues when repayment resumes is an easy call.
The end of the federal student loan interest and payment freeze will present huge challenges to borrowers and loan servicers.
Fortunately, borrowers can get proactive to avoid many of the predictable headaches.
Dark Clouds on the Horizon: Federal Servicing when Repayment Restarts
At the conclusion of the payment and interest freeze, approximately 30 million student loan borrowers will enter repayment simultaneously.
Long before the pandemic, there were issues with loan servicers. The government previously accused one of the largest servicers of failing to process payments, obscuring information, and borrower deception.
Once the pandemic began, and payments were suspended, servicers reduced staff.
Staff training was an issue before Covid-19. Now servicers will have to add sufficient staff to handle an unprecedented number of borrower calls, complaints, and questions.
The list of borrowers who will need immediate help is long:
- People are unemployed or underemployed due to the pandemic.
- IDR borrowers who need to recalculate their monthly payments.
- Graduates of the class of 2020 and 2021 will be starting repayment for the first time.
- Borrowers who need to update their progress towards student loan forgiveness.
Servicers are already saying they expect more calls in one month than they normally receive in a year.
Planning for Federal Student Loan Payments to Resume
The government has already extended the federal student loan interest and payment freeze several times. Planning for a moving target presents challenges to borrowers.
That being said, I’d expect the actual end of the Coronavirus relief to be clear in advance. The President or Secretary of Education may even announce that no further extensions will be issued. This move would give borrowers and servicers time to prepare for the big restart.
Before payments resume, borrowers should consider the following:
- What repayment plan do I want?
- If I’m an IDR borrower, have I recertified my income?
- Do I need to file an Employer Certification Form for Public Service Loan Forgiveness?
- Am I ready to resume making payments, or will I need help?
Answering these questions in advance is ideal. Borrowers can avoid long wait times and get help from loan servicers before they get overwhelmed and start rushing things.
Additionally, the crowd of callers and borrowers needing customer support may make it hard to meet deadlines. The IDR borrowers will want to pay special attention to their yearly recertification deadlines. A delay could potentially be very expensive.
To the extent possible, borrowers should research and investigate all questions before the payment freeze ends.
Things to Watch Once the Interest Freeze and Payment Suspension Ends
Even if borrowers do everything right before the freeze ends, there may still be issues.
Auto-debits may have been canceled at the beginning of the interest freeze. Will they resume automatically, or do borrowers need to take specific steps?
Are the federal student loan servicers pulling money out of the correct bank account and applying payments correctly? As borrowers, we often take these simple steps for granted. However, given the unprecedented number of borrowers starting repayment at the same time, the odds of a mistake are increased.
Tools for Planning
- Department of Education Repayment Simulator – The repayment simulator helps borrowers compare repayment plans and estimate monthly payments.
- PSLF Help Tool – Borrowers working towards PSLF can use the help tool to ensure they file the necessary forms.
- StudentAid.gov IDR Request Form – This form is required for signing up for an income-driven repayment plan. Borrowers can also use it to change plans, recalculate their payments after a pay cut, or do a yearly income-certification.
