Owen Daugherty, NASFAA Staff Reporter
May 24, 2021
As the Department of Education (ED) prepares to transition millions of student loan borrowers back into repayment when the federal forbearance period comes to an end in the fall, several Democratic senators are asking the department’s leadership how it plans to do so smoothly.
In a letter to Education Secretary Miguel Cardona, Sen. Elizabeth Warren (D-Mass.) and three other Senate Democrats called on the department to detail its plan to resume monthly payments for more than 40 million borrowers in October and whether it plans to extend the existing federal contracts with student loan servicers.
“During the pandemic, borrowers have reported confusion about how pandemic assistance provisions apply to them, suggesting that proactive steps prior to the end of the payment pause are needed to prevent them from falling through the cracks,” Warren, along with Sens. Tina Smith (D-Minn.), Chris Van Hollen (D-Md.), and Richard Blumenthal (D-Conn.), wrote to Cardona last week.
The letter adds “little is publicly known about how loan servicers have supported borrowers during the pandemic or how they are preparing for payments to resume.”
Specifically, the lawmakers are requesting answers regarding what steps ED is taking to ensure loan servicers are conducting the required proactive outreach to prepare borrowers to resume making payments and how ED is measuring any such outreach.
They also asked ED to detail how many borrowers have received various forms of existing relief and loan forgiveness during the pandemic, broken down by each of the loan servicers ED holds contracts with.
During a recent Senate hearing, Warren grilled the presidents of two of the largest student loan servicers for allegedly failing to provide borrowers with the necessary information needed to qualify for loan forgiveness programs and successfully manage their payments.
As the letter notes, the pause on payments and interest accrual for borrowers with federally-held student loans that has been in place since the onset of the pandemic is set to conclude a few weeks after the enhanced unemployment benefits expire, which along with other factors could lead to “a sharp increase in consumers filing for bankruptcy.”
The lawmakers are urging ED to ease the circumstances under which it contests the claims of borrowers who are seeking a discharge of their federal student loans in bankruptcy court.
Since it is more difficult for student loan debt to be discharged through bankruptcy, the letter calls on ED to clarify and publicize its definition of “undue hardship” — something borrowers must prove in order to discharge their student loan debt in bankruptcy.
ED “has the discretion to decide when to contest these claims, and it could make this option more accessible for the most distressed borrowers,” the lawmakers wrote.
With all of the major loan servicers’ current contracts set to expire this year, the letter asks ED whether the contracts will be extended and to consider not awarding future contracts if the servicers have been found to engage in abusive practices or have a history of poor performance.
Additionally, the lawmakers requested an update on ED’s Next Generation Financial Services Environment (NextGen), an ambitious effort to modernize and overhaul the Office of Federal Student Aid (FSA) and how borrowers interact with the office.
“NextGen could provide an opportunity to improve borrowers’ experiences and diminish the power of loan servicers,” the letter states, alleging that progress has “been plagued with delays and confusion.”
The lawmakers’ letter follows one from several higher education associations in March — including NASFAA — that called on ED to clarify uncertainty surrounding NextGen and federal loan servicing contracts.
Although the timeline for implementing the NextGen initiative was modified due to the pandemic, it is still a central part of FSA’s strategic plan for improvements over the next several years.
“The decisions you make in the coming months about the future of NextGen and related servicing contracts will affect borrowers’ experiences of loan repayment for years to come,” the lawmakers wrote.
The lawmakers called on ED to provide answers to their questions by June 4.
“We have received the letter and look forward to responding directly to the letter’s authors. It is crucial that student loans help finance a path to opportunity, not become a lifelong burden. At the Department of Education, we are committed to standing up for students and borrowers, which includes ensuring for-profit institutions are held accountable for their predatory behaviors,” an ED spokesperson told NASFAA.