Republicans Raise Alarms About Student Loan Repayments

Two Republicans are demanding answers from the Biden administration about how it plans to handle the resumption of student loan payments that is set to start when the years-long pause ends in October.

The pause on student loan interest and repayments has been in place since the start of the COVID-19 pandemic and was extended nine times by both President Joe Biden and Donald Trump as part of an effort to provide financial relief to millions of federal borrowers. But in June Biden announced he would not be extending it again when the end of the pause was included in the bill he signed to raise the debt ceiling.

Regardless of the Supreme Court's upcoming decision on Biden's plan for student debt forgiveness, interest and payments will resume in the fall. The unprecedented return of payments has raised questions about whether borrowers will be able to get timely and accurate information.

In a Tuesday letter to Education Secretary Miguel Cardona, Representative Virginia Foxx and Senator Bill Cassidy expressed concern that the Department of Education is "ill prepared" to restart student loan payments. The two GOP lawmakers criticized the department's vagueness in its earlier response to an April letter sent by Republicans, calling its reply "devoid of evidence of any plan of action."

"The Department has yet to provide any tangible proof of any plan for the return to repayment," Foxx and Cassidy wrote in their joint letter.

Newsweek has reached out by email to the Department of Education for comment on the letter.

Ethan Harris, head of global economics research at Bank of America Securities, wrote in a recent note that the bank is expecting delinquency levels to return to where they were before the pandemic. Harris put the amount at $167 billion in "new seriously delinquent balances," calling it a "sizeable shock."

Read more: Student Loan Forgiveness Updates and FAQs: Who Qualifies and How To Apply

Data from the Consumer Financial Protection Bureau shows that more than 1 in 13 student loan borrowers are behind in their payment obligations and that 1 in 5 faces risk factors suggesting they will struggle once payments resume. The bureau also said that several large servicers have ended their contracts with the Department of Education in the last three and a half years. This means that 44 percent of borrowers will be working with a company different from the one they used before the pandemic.

"For some borrowers, this process may be smooth with few changes. But other borrowers may need to create new logins with their new services, re-enroll in autopay, or update their payment information," the bureau wrote in a June 7 blog post.

In their letter Foxx and Cassidy also expressed concern about borrowers flouting requirements to pay back their loans after the pause ends. They cited a Newsweek report about borrowers refusing to pay back loans and criticized a professor who called for people to refuse "en masse" to pay back loans.

"We expect you and senior officers of the Department to exercise leadership in countering such efforts wherever and whenever they occur, particularly since nonpayment will lead to negative financial consequences for borrowers and barriers to future financial opportunities," the letter said.

During a May congressional hearing, Cardona admitted that requiring 43 million people to resume loan payments is unprecedented in U.S. history. However, he said the Department of Education is prepared to support borrowers throughout the process.

An advisory label on the department's federal student aid website says that it plans to "notify borrowers well before payments restart" in October. Interest will resume a month earlier, on September 1, according to the page.