Transitioning millions of student-loan borrowers back into repayment this year will be a 'huge undertaking,' Biden's Education Department says

  • Federal Student Aid's 2022 annual report said that resuming student-loan payments this year will be a "huge undertaking."

  • It cited the unprecedented nature of Biden's broad debt relief and extensions of the payment pause.

  • The agency said it will improve customer service, but borrowers are continuing to struggle with their loan servicers.

President Joe Biden's Education Department is prepping for a chaotic year for the student-loan industry.

The Federal Student Aid (FSA) office recently released its fiscal year 2022 annual report, which took a look back on whether it met a range of goals it set for itself over the past year related to communications with student-loan borrowers, student-loan company performance, and disbursement of financial aid, among other things.

Along with analyzing what happened in 2022, the report also took a look at what's to come in 2023 and the changes the industry is likely to experience. In the section on FSA management's outlook, it said its focus for this year will be to "raise the standard for excellent customer service by modernizing the loan servicing infrastructure, enhancing borrower repayment outcomes, implementing incentives to reduce loan defaults, and keeping the promise to improve opportunities for students and families to make informed decisions on financial aid for college and student loan repayment."

But it also noted changes that came from Biden's announcement in August to cancel up to $20,000 in student debt for federal borrowers making under $125,000 a year. Due to two conservative-backed lawsuits that have blocked the implementation of the relief — the cases will be heard by the Supreme Court on February 28 — the Education Department extended the student-loan payment pause to 60 days after June 30, or 60 days after the litigation is resolved, whichever happens first.

Regardless of the outcome of the cases, the department has maintained that payments will still resume this year, and the report said that "return to repayment will be a huge undertaking for FSA."

"FSA has initiated communication campaigns to inform borrowers about the process to restart payments, provide resources and incentives to minimize risk of default and delinquency, and educate the borrower on repayment options," the report said.

"FSA's loan servicing partners are integral to the success of the future return to repayment plan, but the world of servicing federal student loans is changing rapidly," it continued. "Collaboration with the servicers in the development of detailed outreach strategies will support a successful end of the administrative forbearance period."

Communicating with student-loan companies has been an ongoing issue for many borrowers. Insider previously reported on hours-long hold times some borrowers were experiencing when trying to get help from MOHELA, a company currently involved in one of the lawsuits seeking to block Biden's broad debt relief.

FSA's report noted that due to multiple extensions of the student-loan payment pause over the past year and temporary reforms to targeted relief programs, student-loan companies failed to meet their customer service objectives. To prepare for 2023, FSA said it will "take positive action in preparing loan servicers for the expected increase in incoming calls based upon impact of debt relief and the return to repayment."

Still, borrowers remain frustrated with the difficulty they've experienced getting simple questions answered from their servicer — especially with the uncertainty surrounding when they will resume payments this year, and if they will see an up to $20,000 reduction to their loan balances.

"My fear, regardless of the outcome of the case, is that the White House is so desperate to restart payments and get back to normal that they've forgotten that 'normal' is a decades-long debt sentence; either way, it will be an excuse to say they'd done all the can," one borrower recently told Insider.

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