Senators warn of financial hardship when student loan payments resume

When the coronavirus pandemic first struck the United States in March 2020, student debt relief was among the first measures adopted to help struggling Americans. As of March 27, 2020, federal student loan interest rates have been set at 0% and payments have been suspended. However, the policy expires on October 1, 2021.

On Monday, Democratic Senators Elizabeth Warren, Tina Smith, and Edward J. Markey sent letters to the CEOs of all state student loan administrators asking for information on steps the companies are taking to restore millions of federal student loan borrowers after the moratorium expires to repay.

“Millions of borrowers have been relieved of their payments and interest on student loans for more than a year during the Covid-19 pandemic – but they now risk getting into exceptional financial trouble if their payments resume,” it said Letter sent to CNBC Make It. “We support $ 50,000 debt relief for each borrower to ease this burden on our economy, but in the meantime, we ask for information on how your company is preparing for this transition to repayment and what steps it is taking has to ensure that it is adequately supported by borrowers. ”

Warren previously interviewed student loan executives, Jack Remondi, CEO of Navient, and James Steeley, CEO of the Pennsylvania Higher Education Assistance Agency, during a Senate subcommittee hearing about their treatment of borrowers.

Experts like Sarah Sattelmeyer, former director of Pew’s Successful Student Loans Project and current project lead at New America, say that if the Department of Education has put student loan deferrals in the past, student loan defaults often increase when payments are resumed. She fears borrowers will face similar difficulties in the fall.

“If you turn the switch back on, millions of borrowers will resume repayments at the same time, and that will strain and overwhelm the system and service providers. And that could lead to negative results, ”she says, such as missed payments and default.

Sattelmeyer estimates that if payments are resumed, approximately 9 million borrowers will turn to their service providers and that almost 40% of borrowers do not know when their payments will resume.

In addition, some service providers have reportedly reduced their workforce during the pandemic, including positions working with borrowers.

“If borrowers in trouble are forced to repay their student loans with no adjustments or assistance, they could default or find themselves in dire straits and face disastrous long-term economic consequences that will reverberate across generations,” warn the senators. “After previous student loan emergency suspensions during natural disasters, more and more borrowers defaulted or defaulted on their loans. A wave of student loan defaults would damage borrowers’ creditworthiness and financial stability over the long term and could cause sudden and unnecessary default.” slow down the recovering economy. “

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