After two large federal student loan service providers announced they were suspending their work at the US Department of Education, borrower advocates are pushing President Biden to cancel student loan debt.
“10 [million] at the end of the year, borrowers won’t even have credit providers, ”said Debt Collective, a debtor union that advocates for the cancellation of widespread student debt. Tweet yesterday. “1% of borrowers are paying right now. We should simply write off the debt and let it serve as an economic stimulus for 45 people. [million] people and their communities ”.
Earlier this week, Granite State Management and Resources, which serves over a million student loan borrowers’ accounts, announced the termination of student loan servicing operations for the Department of Education by the end of the year. Granite State’s decision soon followed a similar announcement from the Pennsylvania Higher Education Aid Authority (PHEAA), which operates FedLoan Servicing. PHEAA announced earlier in July that it would also waive the federal direct service for student loans. FedLoan Servicing manages over eight million student loan borrower accounts for the Department of Education and also has an administration contract TEACH Public Service Loan and Grant forgiveness programs…
The sudden departure of two large student loan companies could cause serious problems for borrowers. Granite State and FedLoan Servicing jointly serve at least 10 million student loan borrower accounts, which is about 25% of the DOE’s portfolio. It is unclear if other student loan organizations will also be suspended in the coming months.
The Biden administration will now have to turn over millions of accounts to new student loan companies. Such translations are historically was devastating to borrowers, with widespread problems, including loss of records and damage to credit.
Service transfers will also occur in the midst of the expiration of the current federal student loan moratorium, adding another layer of complexity to an already chaotic situation. The pause in student loan payments, originally mandated by CARES in 2020, was supposed to last just six months, but was extended several times by President Trump and then again by President Biden. The current extension of the moratorium expires on September 30, 2021.
Advocates for student loan borrowers were already concerned about the ability of student loan servicers to process renewed payments before Granite State and FedLoan Servicing announced they were phasing out loan servicing operations. “There is a broad consensus among borrowers, lawyers, industry representatives, regulators, law enforcement officials and legislators that a hasty resumption of student loan payments is a recipe for disaster and will lead to widespread confusion and disaster for student loan borrowers,” wrote coalition representatives. organizations in letter to President Biden last month. “Before resuming student loan payments, the Department of Education must implement significant structural reforms, provide real, immediate assistance and write off a significant amount of federal student debt.” Calls to cancel student loan debt have only intensified in the midst of the current student loan servicing crisis.
Biden promised enact wide student loan forgiveness during its 2020 presidential campaign. But as for the president, he prefers a more “targeted” approach. Biden canceled hundreds of millions of dollars student loan debt to borrowers defrauded by some commercial schools, but that represents a small fraction of the $ 1.8 trillion outstanding student loan debt.
Biden expressed some support for a total debt write-off of $ 10,000, but also said that existing student loan forgiveness programs (such as borrower protection to maturity, income-oriented repayment plans, and government service loan forgiveness) should be improved. and expanded. … He did not support the more generous proposals of $ 50,000 or more in student debt cancellation, as advocated by advocacy groups and leading Democrats in Congress, including Senator Elizabeth Warren (Massachusetts) and Senate Majority Leader Chuck Schumer (New York) …
However, the Biden administration argued that the president supports some form of general student loan forgiveness. The main question is whether Biden will use executive action to achieve this goal, given that Congress has not put forward any student loan forgiveness bills that could be passed by both the House and Senate. Democratic congressman and some student loan legal experts argued that the Higher Education Act grants the president broad powers to cancel student debt. However, Ministry of Education officials, led by former Education Minister Betsy DeVos, disagreed with these findings: argue that the massive cancellation of student loans is contrary to the intentions of Congress.
In April, Biden instructed his lawyers at the Department of Education and the Department of Justice to check if there was a specific legal basis for deciding on a massive forgiveness of student loans using enforcement action. The Biden administration did not announce any findings from this review, nor did it provide any indication that the growing chaos in student loan servicing was affecting its decision-making.
Meanwhile, defenders continue a parallel movement to persuade the Biden administration extend the current pause in student loan payments sometime in 2022, arguing that the upcoming disruptions caused by student loan service transfers will be too chaotic for borrowers to navigate when they resume repayment.