What to expect as federal student loan payments resume

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Oct 02, 2023 View in browser   By Michael Stratford QUICK FIX 'STUDENT LOAN PAYMENTS: Tens of millions of Americans are bracing this month to resume making payments on their loans now that the unprecedented pandemic-era pause has finally come to an end. — But turning on a federal student loan system that was plagued by problems even before Covid will be a major logistical and operational challenge for Education Department. And student loan bills are coming due at a particularly tumultuous time for the White House, which is contending with high-stakes fiscal fights in Congress and a swirl of growing economic headwinds. President Joe Biden is joined by Education Secretary Miguel Cardona as he announces new actions to protect borrowers at the White House on June 30, 2023, after the Supreme Court struck down his student loan forgiveness plan. | Chip Somodevilla/Getty Images — Most economists and analysts agree that the student loan resumption, in isolation, doesn’t present a major risk to the U.S. economy, though even the most conservative estimates forecast some chipping away at consumer spending and growth later this year. — What sets the student loan resumption apart from those other economic events is that every step of it is being managed — in excruciating detail — directly by the Biden administration. More on that here, from your host and Sam Sutton. — White House and Education Department officials have a plan to soften the blow of payments restarting. They’ve internally modeled various potential outcomes, set up a yearlong safety net program, and are trying to drive borrowers to enroll in a new repayment program that offers lower payments and new interest subsidies. — But the big outstanding question is just how many borrowers take advantage of those benefits — and how many fall behind on payments. “We are working very hard to communicate with borrowers about the options that are available to them and to put in place safeguards for borrowers,” Undersecretary of Education James Kvaal told POLITICO. — Kvaal said that officials have been gearing up to closely monitor how student loan borrowers fare and how loan servicers perform as payments resume. He also said the department is considering releasing publicly more data about its student loan portfolio. Read our full Q&A with him here. IT’S MONDAY, OCT. 2. WELCOME TO MORNING EDUCATION. Please send tips and feedback to the POLITICO education team: Michael Stratford (mstratford@politico.com), Mackenzie Wilkes (mwilkes@politico.com), Juan Perez Jr. (jperez@politico.com) and Bianca Quilantan (bquilantan@politico.com). Follow us: @Morning_Edu and @POLITICOPro.   SUBSCRIBE TO CALIFORNIA CLIMATE: Climate change isn’t just about the weather. It's also about how we do business and create new policies, especially in California. So we have something cool for you: A brand-new California Climate newsletter. It's not just climate or science chat, it's your daily cheat sheet to understanding how the legislative landscape around climate change is shaking up industries across the Golden State. Subscribe now to California Climate to keep up with the changes.     Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. Driving the Week RETURN TO REPAYMENT ROUNDUP: Here’s a look at some of the many moving pieces as the federal student loan system begins to thaw out this week: — By the numbers: About 28 million federal student loan borrowers are returning to repayment. The borrowers who are set to resume repaying in October have a median debt “just over” $21,000, according to the Education Department. About a quarter of them owe less than $9,000, while another quarter of them owe more than $46,000. — Not all borrowers covered by the payment and interest pause will resume paying. About 8 million other borrowers won’t be required to pay because they’re still in school, have received another type of deferment or are waiting for a loan discharge that’s already been approved, the department said. Another 7 million borrowers remain in default on their loans since before the pandemic. — A government shutdown won’t disrupt the student loan restart, at least for now. Congress over the weekend passed a stopgap measure to fund most federal agencies at their existing levels through Nov. 17. — But the Education Department didn’t get the extra flexibility to more quickly spend administrative funding to run the federal student loan program. That could potentially spell further cuts to customer service levels that the agency provides borrowers in the coming months (just as it had to make earlier this year). — The stopgap bill lets agencies receive a prorated amount — about 13 percent, OMB determined— of last fiscal year’s level of funding for the next several weeks. — It’s yet not clear what, if any rollbacks the administration will have to make. An Education Department spokesperson said Saturday that the agency would “do the best it can with the resources available to support borrowers as they return to repayment” but added that “it is critical for Congress to pass government funding bills that fully fund” Federal Student Aid. — Democratic attorneys general are urging the Biden administration to “do more to mitigate harm to borrowers” from the return to repayment. A group of 19 attorneys general on Friday told the Education Department it should “liberally” put borrowers in forbearances and suspend interest accrual in cases where borrowers are having difficulty reaching their loan servicers, unable to access income-driven repayment programs, or are eligible or potentially eligible for a loan discharge through other policies. — House Republicans are urging the CFPB to ease up on student loan servicers. In a letter to the consumer bureau on Friday, seven GOP lawmakers on the House Financial Services Committee said they’re concerned that regulators may levy fines against federal loan servicers who provide degraded customer service. They argue in the letter, obtained by POLITICO’s Eleanor Mueller, that it’s really the Education Department’s funding cuts and Biden administration’s mismanagement of the loan programs, not the servicers, who are at fault. In the Courts CFPB POISED FOR FIGHT OF ITS LIFE AT SCOTUS: The Consumer Financial Protection Bureau is facing an existential threat on Tuesday when the Supreme Court hears arguments on its constitutionality, POLITICO’s Katy O’Donnell reports. — The case could result in curbing the power of an agency that’s emerged as a major regulatory force in the student loan industry and for-profit education world. Education Department ICYMI — BIDEN ADMIN FLOATS HINTS OF PLAN B STUDENT DEBT RELIEF: The Biden administration on Friday released new details about how it may structure their new student debt relief program. Administration officials said they wanted to seek feedback from a federal rulemaking panel on how it may provide loan relief to five “distinct categories” of borrowers. — Those five categories are: borrowers who owe more than they originally borrowed, borrowers who have been in repayment for decades, borrowers who attended schools that didn’t provide “sufficient financial value,” borrowers who are eligible for federal relief programs who never applied and borrowers who experienced “financial hardship.” — The Education Department also unveiled the roster of the rulemaking panel that’ll debate those proposals at a first public meeting on Oct. 10.   GROWING IN THE GOLDEN STATE: POLITICO California is growing, reinforcing our role as the indispensable insider source for reporting on politics, policy and power. From the corridors of power in Sacramento and Los Angeles to the players and innovation hubs in Silicon Valley, we're your go-to for navigating the political landscape across the state. Exclusive scoops, essential daily newsletters, unmatched policy reporting and insights — POLITICO California is your key to unlocking Golden State politics. LEARN MORE.     MOVERS AND SHAKERS with help from Daniel Lippman — Rachel Homer is now chief of staff for the Office of the General Counsel at the Department of Education. She most recently was counsel at Protect Democracy and is a DOJ alum. Syllabus — Attorneys for college taken over by DeSantis allies threaten to sue ‘alternate’ school: The Associated Press. — Bus driver shortage forces schools to cut service, pay parents to transport kids: The Wall Street Journal.   Follow us on Twitter Delece Smith-Barrow @DeleceWrites Michael Stratford @mstratford Bianca Quilantan @biancaquilan Juan Perez Jr. @PerezJr Mackenzie Wilkes @macwilkes   Follow us

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