Student loan servicers told not to contact borrowers as payment pause deadline nears

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WASHINGTON — A little more than a month before the student debt moratorium is scheduled to end, the federal government has told loan servicers not to contact borrowers about resuming payments, a trade group official said Monday.

The Education Department has been telling loan servicers not to reach out to borrowers as recently as “the last couple weeks,” said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, which represents all of the companies that service the federal loans subject to the administration’s moratorium.

NBC News has asked the Education Department for comment.

The Wall Street Journal first reported Monday that loan servicers have been told not to contact borrowers.

President Joe Biden in April extended the pause on federal loan repayments until Aug. 31, saying the nation was still recovering from the coronavirus pandemic.

A White House official said Monday night that “no decision has been made" about whether to extend it again. The official said Biden will make a decision before Aug. 31.

Repayments on federal student loans were first paused more than two years ago when the pandemic took hold.

The pause began in March 2020, when then-President Donald Trump signed into law the CARES Act, which halted payments through September 2020 and froze interest accumulation. Trump later took executive action to extend the deferral period through January 2021.

Biden has repeatedly extended the moratorium — starting on his first day in office and most recently in April. The moratorium doesn’t apply to borrowers with privately held loans.

Buchanan said his group has previously warned the government about issues that may arise from resuming payments.

“We needed to know two months ago, but really, we’re at the Rubicon here. If we get into August and don’t have guidance on this, I mean, we are really creating an untenable position for us and for borrowers,” Buchanan said.

“We can’t turn on a dime. And I think that’s something they don’t really fully appreciate,” he added.

Resuming payments would come at a high political cost for Biden and congressional Democrats, who are pushing to energize their base ahead of the midterm elections.

A source familiar with the matter said an extension of the pause on repayment is likely. “I just don’t see how they don’t,” the source said.

“While theoretically they can wait until the 31st, if they do, they are de facto delaying it,” the source added, citing the operational challenges of restarting the program.

It's unclear whether Biden plans to take action on canceling student debt. Many progressives have advocated for eliminating all loan balances, with some Democrats saying the president should cancel up to $50,000 per borrower.

The White House has indicated in the past that Biden was open to canceling $10,000 for borrowers under a certain income, but nothing has been announced.