In October, student loan repayments were turned back on, and 40 million student borrowers with outstanding debt surely have had questions, especially those borrowers making repayments for the first time. Who is their loan servicer? What is their federal identification number? Which repayment plans are they eligible for?
The Office of Federal Student Aid (FSA), the Education Department division charged with overseeing everything about student loan debt, is struggling to answer them. The office is severely underfunded, and there are simply not enough bodies at FSA-contracted loan servicing call centers to handle the massive volume of requests already coming in.
Many forecast disaster, with student borrowers unable to gain the information they need to restart payments.
“It could become HealthCare dot gov all over again,” says Clare McCann, higher education fellow at Arnold Ventures, to explain the scale of the problem.
Political gridlock between Congress and the Department has stood in the way of providing the needed budget appropriation to fund FSA and smooth the transition from a three-year pause on student loan repayments that began during the economic crisis of the COVID-19 pandemic.
But higher education experts say that federal lawmakers must put the infighting aside and support the agency for the sake of student borrowers.
FSA needs funding, and it needs it to be made available as soon as possible.Clare McCann higher education fellow at Arnold Ventures
“We work on a lot of complicated policy issues,” says McCann. “This one is urgent, but it’s not complicated. FSA needs funding, and it needs it to be made available as soon as possible. We need to make sure that restarting student loan repayments goes as smoothly as possible, that borrowers are not left in the lurch, and that political infighting doesn’t win the day.”
A Burden on Student Borrowers
FSA supports student borrowers in a wide variety of ways, from the application process all the way through to the final loan repayment. The agency manages the FAFSA student aid application during the pre-enrollment process; oversees funds for Pell Grants and the work-study program while students are enrolled; and administers and oversees student loan servicing contracts, the repayment system, and targeted loan forgiveness programs like Public Service Loan Forgiveness once students leave school. FSA’s loan servicers operate call centers and systems to assist students with the repayment process, which can be complicated to understand.
“For many students to be able to successfully begin repayment, they need to speak with call center representatives,” says Michelle Dimino, deputy director of education at Third Way. “What we saw during the pause is that servicers didn’t have a need for as many staff as they had before, so a lot of them cut down on servicing hours. The Department of Education also lowered its requirements for call centers and the standards that servicers have to meet.”
Experts like Dimino accurately predicted hour-long hold times for student borrowers, who struggle to get through to representatives at call centers. Some students may not be aware that they are expected to resume repayment at all, because servicers lack the resources to conduct robust outreach to them. Ultimately, students may struggle to find the right repayment plans and determine how to make repayments without more funding for FSA.
The Biden administration has committed to making the transition back to repayment as smooth as possible, providing a 12-month “on-ramp” during which borrowers will not fall into delinquency or default because of inability to make their payments, though interest will continue to accrue. But these measures only delay the inevitable.
“This is less of a sudden crisis and more of a slow-burn challenge that borrowers will face over the course of the next year,” McCann says. “There are going to be a lot of burdens placed on borrowers in this process.”
How We Got Here
How FSA got into this situation is partly an administrative story. In 2020, the Trump administration paused student loan repayments as a short-term response to economic free-fall during the pandemic. That short pause became a three-year holiday as both President Trump and his successor, President Biden, enacted multiple extensions.
Every time you extend the repayment pause, that just makes it harder to turn student loan repayments back on again.Preston Cooper senior fellow at the Foundation for Research on Equal Opportunity
“Every time you extend the repayment pause, that just makes it harder to turn student loan repayments back on again,” says Preston Cooper, a senior fellow at the Foundation for Research on Equal Opportunity (FREOPP), a right-leaning, non-partisan economic think tank. “People lose contact with the system, people have changes in life circumstances, and servicers go in and out of the system.”
There is also a familiar story of political football at play behind the congressional failure to increase FSA funding. For some, the budget for the agency has become tied to debates over debt cancellation as the Biden administration has prioritized canceling up to $20,000 of student loan debt for large numbers of borrowers. That priority factors into the way lawmakers think about federal money devoted to FSA. Today, many conservative lawmakers who oppose student debt cancellation lack confidence in the administration to use increased FSA budgeting effectively.
Last year, Congress provided level funding for the agency, meaning it did not increase the agency’s funding pot, despite the massive influx of calls it can expect as repayments resume.
“Flat funding, like we saw last year — or even tiny increases — just aren’t enough to cover everything that FSA is being asked to do,” Dimino says. “That includes the annual things that are on their list, as well as all of these bigger requirements now to facilitate the return to repayment.”
A “No-Brainer” Solution
Most experts support appropriating additional funding for FSA as a short-term solution. In its most recent budget request, the Biden administration sought an additional $600 million for the agency in order to address understaffing and other issues. Given that the student loan repayment pause costs taxpayers more than $5 billion per month, that budget request would pay for itself in roughly four days if it were used to turn repayments back on.
Cooper says that would unquestionably be a wise investment.
“It’s a no-brainer that if you give FSA more resources, that is going to have a positive return on investment for taxpayers, because you can get more people paying back their loans,” he explains.
FSA does more to help borrowers than simply collect on loans, and increased funding would also help the agency smooth the path for borrowers in other ways. Dimino recently co-authored a report that notes a range of critical tasks for FSA, not only ensuring borrower success when returning to repayment but also simplifying the FAFSA, overhauling student loan servicing, and creating special initiatives to benefit borrowers.
“FSA has one of the most intense to-do lists across federal agencies right now with a pretty limited budget to work with,” Dimino says.
One critical role of FSA and servicers is ensuring that vulnerable borrowers know about and can access income-driven repayment plans, a function that’s badly impeded by underfunding. At New America, Sarah Sattelmeyer, project director for education, opportunity, and mobility in the Higher Education initiative, has been working to better understand how student loan borrowers learn about income-driven repayment and use it.
“New America has done research recently showing that low-income and otherwise vulnerable borrowers are often the least likely to know about income-driven repayment, which is an important program to provide relief for borrowers,” she says. “But when they do know about it, they’re more likely to use it. So it’s important to ensure that there are enough resources and contractor oversight in the system to help people know about the programs available to them and assist them with enrolling.”