Talk about bad timing.
On Sunday, October 1, the same day that the federal student loan system is set to restart after three-and-a-half years of dust gathering, a few House Republicans could shut down the U.S. Government. What does this mean to the tens and millions of borrowers that were about to start repaying their student loans? What we know is:
1. The October payment will be due by the borrowers. On a Friday call with reporters, U.S. James Kvaal, Under Secretary of Education at NPR said that Congress mandated the return to repayments as part of the budget agreement over the course the summer. And so even if House Republicans force a shutdown of the government, we still are required to resume collecting student loans this month.
What would a shutdown mean for the federal student loan program?
2. The shutdown will be more like a dimming light than an on/off button. It won’t affect borrowers right away, but it will over time. What are these “key” activities, you may ask? According to the shutdown plan that was drafted by the U.S. Department of Education in 2021, a few basic operations could be continued for a limited period of time. These include processing FAFSA (Free Applications for Federal Student Aid), disbursing Pell Grants, Federal Direct Student Loans and servicing Federal Student Loans. The federal loan program will continue to be disbursed and serviced. But not for very long.3. Borrowers may start to notice a reduction in customer service after a few weeks. The system is only “a few weeks” old. Jean-Pierre said to reporters that “a shutdown of more than a couple weeks would disrupt the repayment process and long-term support for borrowers.” This does not excuse the borrowers from paying their first payment. This obligation and the interest accrual would continue like a ghostship. What would suffer is the customer service. Kvaal, speaking to NPR Friday, said that they had enough funds to continue service at the
servicers at least for a few weeks. After that, it is possible that the service provided to borrowers could be significantly disrupted, including our call center operations. Borrowers may be skeptical about the service they receive today, especially if they have had to call their servicers recently. More than half of borrowers who called both servicers hung up before they got through. According to federal data, the third servicer had borrowers wait
more that three hours
on average over a two-week time period earlier in the month. The government shutdown could disrupt the clearance process for student loan borrowers during this crucial time. The loan program is more complex than ever, and it’s taking longer for new hires to explain the details to the borrowers. Most importantly, though, a transition this big – helping tens of millions of borrowers return to repayment at once – has never been done before.
Ultimately, this return to repayment was destined to be messy. Attorneys general from 18 states, including Washington, D.C., wrote to President Biden on Friday to express their “serious concerns” about this process, and the impending harm that it would cause to federal loan borrowers in their respective states.