Federal: Advocacy Letter to the Administration on the Student Loan Moratorium

December 21, 2021

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Ambassador Susan Rice, Director
Domestic Policy Council
1600 Pennsylvania Ave., NW
Washington, DC 20500

Dear Ambassador Rice:

We would like to thank you and the Biden Administration for your leadership in providing temporary relief to more than 40 million federal student loan borrowers amidst the COVID-19 pandemic. We also appreciate the Administration’s work to ensure a smooth transition of bringing borrowers back into repayment after January 31, 2022, nearly two years since the student loan payment pause was enacted. It is critical you stay the course to effectively restart payments February 1.

With the current pause on payments and interest extended by President Biden in January set to expire in six weeks, borrowers will have received a total of 22 months of payment and interest relief.

As a result of President Biden’s leadership, the economy is gaining strength, unemployment has fallen to 4.2%, and there is a surplus of employment opportunities. Job gains have been solid in recent months, with the Fed deciding just a week ago to increase the pace of the taper, given the strong footing of the economy. Further, in addition to the payment and interest moratorium, the Biden Administration has provided significant relief to student loan borrowers through targeted forgiveness, Public Student Loan Forgiveness (PSLF) waivers, Negotiated Rulemaking, and self-recertification in its plan for restarting student loan payments in February 2022. Moreover, we understand Operation Fresh Start will allow defaulted borrowers to reset their student loans payments and have the resources they need upon repayment.

More and more Americans are returning to their pre-pandemic lives and are increasingly able to plan for the future and meet their financial obligations. Fortunately, many student loan borrowers are in a position to restart payments after January 31, 2022 without the need for another extension. Data from our members, who include student lenders and loan repayment benefit providers, strongly indicate that many federal student loan borrowers have the ability to begin repayment on their loans. In fact, such data show that student loan repayment emergency assistance for their customers is under 1%. Extending the payment relief for all borrowers will subsidize higher-income borrowers at the expense of distressed borrowers who are disproportionately people of color and women.

Extending the payment freeze beyond January 31, 2022 would be detrimental to the Department of Education (Department) as well as the servicers that have employed new staff in anticipation of the return to repayment on February 1. These servicers will have to lay off workers they recently hired. Further, servicers would question whether they want to continue to do business in a program where the Department of Education contradicts itself. If the Department extends the payment freeze again and later tries to bring borrowers back into repayment, it is possible that confusion and false starts will impede borrowers from making payments, impacting their credit and the overall program. Everyone will simply lose faith that the federal government will ever try to collect on its loans.

Should there be a need to further extend the student loan payment pause, which is costing the government $15 billion per quarter, we urge you to take a targeted approach to ensure borrowers in continued distress are the ones to receive relief.  

Further, the Department of Education should continue to aggressively place borrowers into appropriate income-driven repayment (IDR) programs. Unfortunately, IDR programs have been chronically underutilized, but the recovery from this crisis gives the Department of Education a unique opportunity to dramatically improve utilization, significantly improving millions of Americans lives. Current IDR plans include options where borrowers in financial hardship can pay as little as $0 per month. We want to preserve the maximum amount of government support for the borrowers most in need and to create a pathway for the Department of Education to realize the full potential of IDR. We think ending the broad payment and interest relief on January 31, 2022, as planned, is an effective way for the government to support those in need.

We urge the Department of Education to communicate clearly to borrowers, loan servicers, credit bureaus, and other service providers its intent to resume payments from all or some designated portion of borrowers after January 31, 2022. Clear and consistent communication of reliable dates and deadlines are necessary to enable a smooth transition back to repayment. At a minimum, the administration must resume student loan payments February 1 to ensure confidence in the federal student loan system.  

Finally, the student loan industry stands ready to help the Department of Education ensure a smooth and successful transition back into repayment. Industry welcomes the opportunity to share insight, data, technology, and operational scale to support this effort, at no cost to the federal government. Several education stakeholders have weighed in on this issue, including through a joint memorandum that outlines recommendations for the Department to take as we approach January 31, 2022. Some of these recommendations include:

1. targeted outreach to distressed borrowers and additional flexibilities to those borrowers;
2. providing clarity on auto-debit payments;
3. the expanded ability for loan servicers to enroll borrowers into IDR plans; and
4. requiring loan servicers to maintain a skilled workforce and proper servicer oversight.

A successful transition back to repayment after January 31, 2022 would be yet another sign of the much-needed return to normalcy that has been possible by the hard work of the American people and tireless efforts of this administration.

We appreciate your ongoing leadership and commitment to student borrowers and the American people.

Sincerely,

Garry Reeder
Chief Executive Officer
American Fintech Council