The federal student loan payment moratorium, which has been in existence for more than three years, will end shortly, regardless of how the U.S. The Supreme Court makes a decision on the Biden administration’s loan forgiveness proposal. Expect plenty more hassles — and delinquencies — when payments start.
Concerns Arise over Transition to New Student Loan Servicers, Reveals Consumer Finance Protection Bureau Research
According to a new Consumer Finance Protection Bureau (CFPB) research, the problem is how many debtors will begin payments with a new student loan servicer.
The Consumer Financial Protection Bureau examined the credit records of a sample of consumers who were projected to return to payments by the end of the summer. The payment moratorium will end 60 days after June 30th, or whenever the Supreme Court rules on the loan forgiveness proposal.
According to a new Consumer Finance Protection Bureau (CFPB) research, the problem is how many debtors will begin payments with a new student loan servicer.
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Consumer Finance Protection Bureau Report Highlights Transition Challenges for Millions of Federal Student Loan Accounts
The Consumer Financial Protection Bureau examined the credit records of a sample of consumers who were projected to return to payments by the end of the summer. The payment moratorium will end 60 days after June 30th, or whenever the Supreme Court rules on the loan forgiveness proposal.
Over 17 million federal student loan accounts have been migrated as of early June. More migrations to alternative services or servicing technology platforms are likely in the coming months. According to the CFPB, the number of transfers will eventually exceed 30 million accounts.
“For some borrowers, this process may be smooth with few changes,” according to the paper. “Other borrowers, on the other hand, may need to create new logins with their new servicer, re-enroll in autopay, or update their payment information.”
Part of the problem may be linked back to a lack of legislative financing for the Federal Student Aid (FSA) office, according to Business Insider. The budget adopted by Congress late last year did not include any additional funding for the agency, which the Education Department said might limit the resources and programs it can implement efficiently.
President Joe Biden’s latest budget proposal for the FSA office was $2.7 billion, a $620 million increase over the previous fiscal year.
The Education Department stated in an April 2023 press release that the additional funds would allow the FSA office to “continue to operate the student aid programs, implement critical improvements to student loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers.”
Another issue that may arise after the payment pause expires is that many borrowers are not financially prepared to resume monthly student loan payments. Among the conclusions of the CFPB:
- More than one in every thirteen student loan debtors is presently behind on their other payments. Despite a tiny seasonal decline in the most recent statistics, these delinquencies are greater than they were before the epidemic.
- One-fifth of student loan debtors have risk characteristics that indicate they may struggle when regular payments restart.
For student loan debtors who are expected to return to repayment, median scheduled payments on other debt commitments have increased by 24%. In percentage terms, these hikes are notably significant for younger borrowers, whose liabilities have more than tripled to $229 from $65.
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