Biden admin will resume interest on federal student loans Sept. 1; monthly payments due in October
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WHEN, EXACTLY, WILL BIDEN RESTART FEDERAL STUDENT LOANS? After more than three years, the federal government’s pandemic-related suspension of student loan payments and interest is officially coming to an end.
— “Student loan interest will resume starting on September 1, 2023, and payments will be due starting in October,” an Education Department spokesperson confirmed in a statement to POLITICO. “We will notify borrowers well before payments restart.”
— The deal President Joe Biden and House Speaker Kevin McCarthy reached to raise the debt ceiling earlier this month cemented into law the termination of the payment pause that’s been in place since March 2020.
— But the text of the deal, the Fiscal Responsibility Act, left borrowers with something of a mathematical word problem on the timing: “Sixty days after June 30, 2023,” the law says, the suspension of student loan payments and interest “shall cease to be effective.”
— That language somewhat mirrors the administration’s previously-announced policy of resuming payments 60 days after either the Supreme Court rules on its sweeping student debt cancellation program or June 30, whichever comes first.
— The provision has sparked some confusion over precisely when borrowers would face interest charges and student loan bills. A range of lawmakers and press reports have described the policy as ending the payment pause on slightly different days.
— The difference of a few days when it comes to interest accrual on the massive federal student loan portfolio amounts to hundreds of millions of dollars for borrowers. The Education Department has estimated that the pause saves borrowers approximately $5 billion in interest each month, so that’s roughly $167 million of interest that typically accrues each day.
— The Biden administration’s confirmation that interest will now resume Sept. 1 and payments in October is consistent with what POLITICO previously reported the administration had been planning before the debt ceiling deal.
— Looming over the restart of payments is whether the Supreme Court will in the coming weeks allow the Biden administration to move forward with its plan to cancel up to $10,000 or $20,000 of debt for tens of millions of borrowers. Many progressives blasted the administration’s agreement with Republicans to codify the end of the payment pause into the debt ceiling deal. They’re worried that the administration has locked itself into restarting payments regardless of whether tens of millions will receive debt relief after the Supreme Court’s ruling.
— Is there any more leeway? An Education Department spokesperson described the latest debt ceiling law as “preventing further extensions of the payment pause.” White House officials have described the agreement as a relatively narrow one, noting that it ends only the current payment pause. They’ve noted, for example, that it would not prevent the Education Department from pausing payments in response to future national emergencies or if it’s otherwise justified under existing law.
— Education Department officials are looking at ways to ease borrowers back into repayment, including offering a grace period for the first several months in which borrowers wouldn’t be penalized for missing required payments, though interest would continue to add up. The department also says its plans to proactively reach out to borrowers who it identifies as being at high risk for delinquency.
— “In spite of our opponents’ best efforts to sabotage our work to support student borrowers, we are fully committed to helping borrowers successfully navigate the return to repayment with the pandemic now behind us,” the Education Department spokesperson said.
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Student Loans
CFPB WARNS OF RETURN TO REPAYMENT COMPLICATIONS: About 20 percent of student loan borrowers “have risk factors that suggest they could struggle when scheduled payments resume,” according to a new analysis of student loan borrowers released last week by the Consumer Financial Protection Bureau.
— Economists from the agency also found that more student borrowers are now delinquent on other payment obligations than they were before the pandemic. In addition, the median scheduled payments on those other obligations have increased by 24 percent for borrowers expected to return to repayment.
— Also complicating the return to repayment: The CFPB notes that tens of millions of federal student loan borrowers will have to work with a different loan servicing company than they did before the pandemic. The Education Department has had to reassign borrowers to different loan servicers because several large companies have ended their contracts with the agency. More than 17 million accounts have been transferred to new servicers or different servicing platforms, the CFPB says, and that number could reach more than 30 million in the coming months.
— The CFPB said it will “continue monitoring borrowers’ repayment performance over the coming months to observe whether these risks materialize into financial distress and to understand where further support may be needed.”
CARDONA CANCELS U. OF WASHINGTON SPEECH OVER LABOR STRIKE: Education Secretary Miguel Cardona canceled his planned commencement address at the University of Washington on Saturday amid a strike by hundreds of university researchers.
— “Given the ongoing strike by graduate and postdoctoral researchers at the University of Washington, Secretary Cardona would not cross the picket line to give the commencement address,” an Education Department spokesperson said in a statement. “We respect the collective bargaining process and hope the parties can reach a resolution soon. We congratulate the University of Washington Class of 2023 and their families on this big accomplishment.”
— About 2,400 research scientists and postdocs, represented by United Auto Workers Local 4121, have been on strike since last Wednesday, seeking higher pay and better support for parents and caregivers.
— A University of Washington website cited “unforeseen circumstances” as the reason for Cardona’s absence. Victor Balta, a university spokesperson, told The Seattle Times: “We have plans to return to the bargaining table Monday and will continue to negotiate in good faith, as we have been.”
— AFL-CIO President Liz Shuler praised Cardona’s move. “This is what solidarity looks like,” she said on Twitter. “Now it’s time for the UW administration to do the right thing and recognize the value of their academic employees.”
— Rep. Pramila Jayapal (D-Wash.), who joined Cardona Friday on a tour of a maritime career training program, also lauded the decision. Cardona “understands the importance of collective bargaining & the stresses that many workers today are under w/rising housing & childcare costs,” she wrote on Twitter.
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In the Courts
SCOTUS DECISION WATCH: The Supreme Court is set to announce major decisions affecting education in the coming weeks. The justices are expected to release their rulings on the use of race in college admissions and the Biden administration’s sweeping student debt relief program.
— The court has three remaining days on which it is scheduled to release opinions around 10 a.m.: Thursday, Friday and next Thursday. But it’s possible the court could add additional days.
Report Roundup
— The National Working Group on Advanced Education, a group convened by the Thomas B. Fordham Institute, is out with a new report today examining equity concerns in gifted education programs.
Syllabus
— Florida families face confusion after gender-affirming care ban temporarily blocked: NPR.
— Education Secretary Miguel Cardona tours career programs in Seattle, Kirkland: The Seattle Times.
— IRS says donations made to nonprofit NIL collectives are not tax exempt: Sports Illustrated.