August 10, 2023
Federal Student Loans: Return to Repayment
In response to the COVID-19 pandemic, since March 2020,
As of May 30, 2023, about 29 million student loan
the accrual of interest, monthly payments, and involuntary
borrowers with more than $1.1 trillion in ED-held loans had
collections have been paused on most federal student loans.
their monthly payments paused. (Borrowers affected by the
The Fiscal Responsibility Act of 2023 (FRA; P.L. 118-5)
interest accrual pause may not necessarily also be
specifies that the interest accrual and monthly payment
participating in the payment pause, such as individuals
pauses shall cease to be effective 60 days after June 30,
whose loans are in in-school status.) Of these borrowers,
2023 (i.e., August 29, 2023). Thus, after over three years of
6.3 million with student loans totaling $264 billion only
no interest accrual and no required monthly payments on
have loans that have not yet been placed into a repayment
most federal student loans, the Department of Education
plan. This may be an indication of borrowers who have
(ED), contracted student loan servicers, and millions of
never been in repayment status on their current outstanding
federal student loan borrowers are preparing for those
loans and, thus, may not have any previous experience
flexibilities to end.
making payments on these loans.
This In Focus provides an overview of ED’s plans for
On-Ramp to Repayment
transitioning federal student loan borrowers into repayment
To facilitate transition into repayment status for borrowers,
on their federal student loans, and of selected policy issues.
ED announced a 12-month “on-ramp to repayment,” which
Detailed information about the federal student loan interest
is a set of flexibilities “to protect the most vulnerable
accrual and monthly payment pauses can be found in CRS
borrowers from the worst consequences of missed
Report R46314, Federal Student Loan Debt Relief in the
payments following the payment restart.” For October 1,
Context of COVID-19.
2023, to September 30, 2024, borrowers who miss monthly
payments due on their loans will not be considered by ED
Interest Accrual
to be delinquent on those loans, nor will such borrowers be
Interest accrual on ED-held loans has been suspended
reported to consumer reporting agencies as delinquent,
during the interest accrual pause. ED has indicated that
placed in default status, or referred to private collection
interest accrual will resume September 1, 2023. As of
agencies. Unlike the payment pause, periods of missed
March 31, 2023, at least 38 million student loan recipients
payments will not count toward meeting loan forgiveness
with balances totaling about $1.4 trillion had interest
requirements, such as under PSLF.
accrual paused on their loans.
Saving on Valuable Education (SAVE) Plan
For most borrowers, the interest rate charged on their loans
On July 10, 2023, ED published a Final Rule to revise the
will be the same as it was before the interest accrual pause
current Revised Pay As You Earn (REPAYE) repayment
began. Borrowers who consolidated their loans into a Direct
plan (a type of income-driven repayment [IDR] plan). In
Consolidation Loan during the pause would have interest
doing so, ED renamed the plan the SAVE plan. In general,
rates on their new Consolidation Loans equal to the
the SAVE plan would result in lower monthly payments for
weighted average of the interest rates on the loans they
all qualifying borrowers as compared to current REPAYE
consolidated, with the result rounded up to the next higher
plan rules. Also, after applying a borrower’s monthly
one-eighth of a percentage point.
payment to their loan, any unpaid accrued interest would
not be charged. Provisions of the plan are to be
Monthly Payments
implemented on a tiered schedule, with some provisions
During the payment pause, borrowers have not been
effective July 30, 2023, and others effective July 1, 2024.
required to make monthly payments on their ED-held
Provisions implemented in both tiers would generally lower
federal student loans. (In practice, ED has placed all such
borrower monthly payments. ED intends to automatically
loans in administrative forbearance.) Borrowers may opt
place all borrowers currently enrolled in the REPAYE
out of the payment pause. While periods of forbearance do
repayment plan into the SAVE plan before the payment
not typically count toward required payment periods under
pause ends. Borrowers not already enrolled in the REPAYE
various loan forgiveness programs (e.g., Public Service
repayment plan may apply for the plan as of July 30, 2023.
Loan Forgiveness [PSLF]), payments that would have been
made during the payment pause count toward meeting such
Selected Issues
loan forgiveness requirements.
This section highlights selected policy issues regarding
federal student loan borrowers’ upcoming return to
ED has indicated that its contracted loan servicers will
repayment that may be of interest to Congress.
begin sending monthly billing statements to borrowers in
September 2023, and that monthly payments will not be due
until October 2023.
https://crsreports.congress.gov
Federal Student Loans: Return to Repayment
Risk of Delinquency and Default
servicers or to different servicing technology platforms.)
Millions of student loan borrowers have not been required
Issues with previous transfers among loan servicers have
to make monthly payments on their federal student loans
been identified, including the following:
since March 2020, and a large portion of those borrowers
• some loan servicers have experienced significant
may have no previous experience in making payments on
operational challenges in managing borrower account
their loans.
transfers while also implementing major loan program
changes, and
ED has indicated that federal student loan borrowers may
be at heightened risk of delinquency and default as they exit
• transferee loan servicers have reported receiving
forbearance. Specifically, ED has pointed to previous
incomplete borrower account information from the
instances in which it provided student loan borrowers who
transferor loan servicer.
experienced local and regional natural disasters with
forbearances. ED cited data showing that in the calendar
Other issues with the administration and loan servicing
year before the disaster declarations for Hurricanes Maria,
environment of the federal student loan programs have also
Harvey, and Irma, and the northern California wildfires in
been previously identified. For example, the CFPB has
identified problems relating to loan servicers’ disclosure of
late 2017, only 0.3 percent of borrowers living in a state
(and county, when relevant) that was a federally declared
student loan terms and conditions and breakdowns in
disaster area defaulted on their loans. However, 6.5% of
customer service. Loan servicers have reported receiving
borrowers defaulted in the calendar year after they exited
fragmented, incomplete, and untimely guidance from ED
the mandatory administrative forbearance in which they
with respect to implementing ED policies.
were placed in response to those disaster declarations.
Transfers of student loan accounts among servicers and
historical issues encountered in the administration and loan
Recent Consumer Financial Protection Bureau (CFPB)
servicing environment may pose additional complications
research indicates that one-in-five student loan borrowers
for borrower return to repayment.
have risk factors (e.g., pre-payment pause delinquencies on
student loans) that suggest they may have difficulty making
Funding for Administration and Servicing
scheduled payments on their student loans when they
Funds for the administration of the federal student aid
become due.
programs, including the student loan programs, are
provided via annual discretionary appropriations. Over the
Loan Program Administration and Loan Servicing
past several years, funding for aid administration has
Since the beginning of the payment pause, the federal
gradually increased. For FY2023, ED requested a $620
student loan programs have experienced several large
million (30%) increase in discretionary appropriations over
policy and administrative changes. Statutory updates, which
the FY2022 amount for student aid administration, but
ED has not yet fully implemented, to streamline
funding for FY2023 was provided at the same amount as
administration of the IDR plans have been made. ED has
FY2022.
also substantially updated numerous loan program
regulations (e.g., PSLF, IDR plans like the SAVE plan,
ED and loan servicers have indicated that such “flat
elimination of instance of regulatory interest capitalization)
funding” may be inadequate to support borrowers’ smooth
to effectively expand benefit eligibility and to ease
transition into repayment. For instance, in light of this flat
administrative processes. Many of these changes recently
funding, it has been reported that ED has decreased funding
became effective or are to be effective in the coming year.
to support federal student loan servicers’ customer service
efforts. As a result, federal student loan servicers have
Significant statutory and regulatory changes and borrower
recently reduced their customer service staffing numbers,
return to repayment may each pose implementation
and ED has reduced the minimum number of customer
challenges to ED on their own. Their near simultaneous
service hours loan servicers are required to provide.
implementation may further complicate their execution. For
Inadequate staffing may hamper customer service and leave
example, with limited staff and monetary resources, ED
borrowers transitioning into repayment with insufficient
may need to prioritize some activities over others, which
support in navigating the terms and conditions of their
may result in suboptimal or delayed implementation of
student loans.
some policies.
For FY2024, S. 2624, the proposed Departments of Labor,
ED-contracted federal student loan servicers play an
Health and Human Services, and Education and Related
integral part in administering the day-to-day aspects of the
Agencies (Labor-ED-HHS) Appropriations Act, 2024,
federal student loan programs, including sending billing
would provide an additional $150,000,000 in appropriations
statements to borrowers, processing payments, and
over FY2023 amounts (a 7% increase), specifically for
communicating with borrowers about and processing
“ensuring the continuation of student loan servicing
borrower requests for loan program benefits and features
activities, including supporting borrowers reentering
(e.g., deferment and repayment plan options).
repayment.” It would also authorize ED to transfer a higher
proportion of appropriations among accounts than is
Recently, several loan servicers have ended their contracts
typically authorized for “continuation of basic operations,
with ED, thus requiring ED to transfer borrower accounts to
including student loan servicing.” The House FY2024
other servicers. (The CFPB estimates more than 30 million
Labor-HHS-ED appropriations bill would decrease funding
borrower accounts may be affected by transfers among loan
for student aid administration by $264,736,000 (-13%).
https://crsreports.congress.gov
Federal Student Loans: Return to Repayment
IF12472
Alexandra Hegji, Analyst in Social Policy
Disclaimer
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https://crsreports.congress.gov | IF12472 · VERSION 1 · NEW