Another pause in student loan payments may be coming

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Loan servicers have been told not to communicate with borrowers

Student loan borrowers are preparing to resume payments after August 31, the date that a moratorium on payments is set to expire. But the Biden administration is dropping clues that another extension of the moratorium could be in the works.

With the scheduled resumption of payments about a month away, student loan servicers need time to prepare bills and resume their collection efforts. But the Wall Street Journal reports that loan servicers have been told to stand down.

Scott Buchannon, who heads the Student Loan Servicing Alliance, says the U.S. Department of Education has told loan servicers not to communicate with borrowers yet. That’s leading to speculation that the White House plans to either extend the pause on payments or even forgive a portion of the loans.

“The situation is that we’re almost 30 days away from the planned resumption and the department has been telling servicers to hold off on resumption communications for the last few months,” Buchanan told the Journal. “Maybe the department expects that the White House will yet again kick the can down the road.”

Resumption of payments may present challenges

Loan servicers have contracts with the Department of Education to manage the repayment of federal student loans. Under normal circumstances, they communicate with borrowers about how much they owe and when and where to send payments. 

Early in the COVID-19 pandemic, when millions of people lost their jobs, student loan payments were suspended as part of one of the pandemic’s many economic relief programs. About 45 million people in the U.S. hold student loan debt. According to the New York Federal Reserve, 67% of student loan debt is owed by people under 40.

That age group is the top household formation demographic, but many have struggled to purchase homes because of student loan debt, which currently totals more than $1.5 trillion.

In March, the New York Fed issued a report warning that it expects a rise in student loan delinquencies whenever the moratorium expires. It noted that very few federal student loan borrowers made voluntary payments during the moratorium. It also said people with private student loans, which were not covered by the moratorium, have struggled to make payments.

Some in Congress, led by Sen. Elizabeth Warren (D-Mass.), have pushed the White House to forgive a large portion of student loan debt.

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