Student Loans on Collision Course With Government Shutdown

In less than a week, the government will halt operations if Republican House Speaker Kevin McCarthy is unable to convince a group of far-right members within his caucus to move forward on spending bills to fund federal agencies passed the September 30 deadline.

While Congress is wrangling on whether to fund the government, more than 45 million Americans will need to start paying off their student loans when October 1 hits. Borrowers had already begun paying back interest on the debt at the beginning of September.

The question is how a government shutdown will affect the ability of borrowers to pay off their loans. Hundreds of thousands of government workers, including those at the Department of Education, will have to stay at home, potentially disrupting how agencies function.

During previous shutdowns, the Department of Education put contingency plans in place that suggest that some officials who manage student loan programs will continue to work to support borrowers.

"Programs with mandatory funding can make obligations and payments during a shutdown. Examples of such programs include Pell Grants and Federal Direct Student Loans," a 2021 department contingency plan said.

Workers tasked with processing payments and managing systems to give out loans will continue to work as well, the department said then.

Also, the government uses outside contractors for student aid operations, according to the American Council on Education, which should theoretically lessen any potential disruptions.

"Borrowers looking for assistance specifically from [the education department] will not receive it during a shutdown," the American Council on Education wrote. "Additionally, students applying for funding from [the education department], whether loans or loan forgiveness, could experience delays."

Also, budget cuts and reports of student loan customer service companies cutting back on their hours could potentially present challenges for borrowers if they need support as they begin their loan repayments.

Newsweek reached out for comment to the Department of Education and the Office of Management and Budget, an entity that provides guidance for government agencies on how to navigate a potential shutdown.

Last week, Democratic lawmakers called on the government to investigate student loan company Mohela over alleged paperwork delays for borrowers for a debt forgiveness program.

The shutdown also means that thousands of workers, some of whom make up the millions of Americans who owe student debt, will have their pay paused for the duration of a shutdown which could affect their ability to meet their repayments obligations.

In June, the Biden administration suggested that there would be some relief to cushion Americans who struggle to pay back their student loan immediately.

"The Department is instituting a 12-month 'on-ramp' to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies," the department announced.

After years of a halt on payment during the economic crisis sparked by the COVID-19 pandemic, borrowers will now have to make those payments again. On average, Americans owe about $37,000 in federal student loans and about $55,000 from private lenders, according to the Education Data Initiative.