Student debt forgiveness rollout could get messy, consumer groups and lenders warn


WASHINGTON — Following President Joe Biden’s decision last month to forgive some student loan debt, consumer advocates and loan service providers have raised concerns that the rollout of the program could be messy and seedy. confusion among borrowers.

Advocates of student debt relief and companies administering the loans say the Biden administration is trying to do too much in too short a time and lacks systems and procedures to ensure proper course of the process.

Most borrowers eligible for cancellation (individuals who earned less than $125,000 in the 2020 or 2021 tax year) will need to complete an application with the Department of Education once it becomes available beginning of October.

But that doesn’t leave much time between when applications open and the Dec. 31 deadline for resuming federal student loan payments for the first time in nearly three years. Consumer protection groups and loan servicers say a three-month period is nowhere near long enough for the roughly 40 million eligible borrowers to submit an application and then be approved by the Department for Education and adjusts loan balances.

“Rolling out the apps in October doesn’t give people much time, especially if the app crashes the same way crashed after the cancellation announcement,” said Kyra Taylor, attorney at the National Consumer Law Center, referring to when an Education Department website crashed after a flood of borrowers rushed to find more information following the announcement of the President on August 24.

“You want people to have a clear view of what they owe before you force them to start paying back again,” she said.

Supporters say the White House should have had the app’s website ready sooner so it could be available to borrowers as soon as Biden announced the cancellation. They also questioned why the administration had not given more time before payments resumed. The Education Department did not respond to requests for comment from NBC News.

Biden said restarting payments alongside canceling the loan would ensure debt relief would not contribute to inflation. In its announcement last week, it made it clear that it would not extend the payment break beyond December 31.

When asked to address concerns about the tight deadline, White House press secretary Karine Jean-Pierre said the Biden administration has already written off billions of dollars in debt for students who attended predatory, for-profit institutions and that the Department of Education could process incoming applications smoothly.

“It’s not the first time. We’ve done this before,” she said. “There’s precedent here.”

Jean-Pierre declined to give a specific date when the application would be available in October, but advised borrowers to submit applications by November 15 so that their loans can be adjusted before monthly payments resume. “There’s a deadline there,” she said.

Consumer protection advocates said not enough was being done to ensure borrowers had all the information they needed.

“I’ve never seen so many changes happen to our student loan system in four months. This is unprecedented,” said Bryce McKibben, senior director of policy and advocacy at Temple University’s Hope Center for College, Community and Justice. “We really need a massive public service announcement campaign to get it right. We need something similar to what we’ve done to help people enroll under the Affordable Care Act.

Some details about the president’s student loan plan — such as proposed changes to the income-based repayment program that would halve monthly payments for undergraduate loans — have yet to be made public. Even when the formal proposal is announced, these changes will still have to go through a lengthy regulatory process, meaning they likely won’t be in place by January, adding to confusion for borrowers as they try to figure out how much they will have to. month.

And it’s still unclear what the roughly 20 million borrowers who the White House estimates will have their loans wiped out entirely by debt cancellation should do if their application is not approved. by January, when payments resume.

Loan managers, private companies the government has contracted with to handle federal loans, said they were already inundated with calls from anxious borrowers who face long wait times to be told that there were no answers to their questions yet.

Many loan officers downsized during the pandemic when monthly payments were halted and are now trying to juggle responding to borrowers’ inquiries about the new loan forgiveness program as they prepare to restart collection payments from millions of borrowers with far fewer staff. than they had before Covid.

“We’re trying to build five different planes as they come down the runway at the same time, and we only have the same number of technicians we had the week before and that’s going to lengthen the time for a lot of these projects that it normally shouldn’t be,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents companies that collect student loan payments for the federal government. Buchanan said the Biden administration had no not consulted his group on his plans.

Amid the complexity and anxiety of borrowers, scams can thrive, something groups that help borrowers have seen with past student loan programs and are already beginning to see with loan forgiveness. The scams offer to help borrowers through the application process for a fee or to help borrowers lower their payments faster, but provide no assistance. Instead, they take the borrower’s money and sell their private information.

“I think the Wild West of crooks is going to be a really big deal,” McKibben said. “It creates a space in which these scams can germinate, in which they can take advantage of the confusion of this period.”


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