In March 2020, the CARES Act automatically granted all borrowers with federally held student debt a six-month forbearance on their loans. This measure, enacted as an emergency response to the Covid-19 pandemic, also set interest rates at zero. As the pandemic rolled on, both the Trump and Biden administrations used executive authority to extend the suspension of student loan payments. After more than a year of kicking the can down the road, loan payments are now scheduled to resume on October 1.

The encouraging pace of vaccinations—as of this writing, 35% of the population had received at least one dose—suggests that the economy may be fully reopen by the fall. The stage will be set for student loan payments to resume. But that doesn’t mean that the Department of Education can flip a light switch on September 30 and instantly transition over 20 million borrowers back into repayment.

An experiment like the mass suspension of student loan payments has never been tried before. It’s easy enough to stop payments, but starting them up again is another matter entirely. Without careful advance planning, the transition could be chaos.

The cost of the student loan payment suspension

The daunting task of getting over 20 million borrowers to start paying their loans again may tempt policymakers to kick the can down the road once again. But extending the pause indefinitely should not be an option. The costs of suspending student loan payments are hidden but still real.

The zero interest rate on federal loans throughout the eighteen-month payment suspension means that the government will collect significantly less in loan payments than was expected when the loans were made. Zero interest rates benefit borrowers with more debt, who also tend to have higher incomes. Moreover, for borrowers who are working towards student loan cancelation through Public Service Loan Forgiveness or Income-Driven Repayment, the eighteen months that the suspension is in effect will count as qualifying payments. But since borrowers aren’t actually making payments during this time, the suspension will increase the balance that the government eventually forgives.

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Education Department documents estimate that the student loan payment suspension cost taxpayers $38.6 billion between March and December 2020 alone. That sum is more than the federal government spends on grant aid for low-income college students every year and almost as much as the most recent pandemic relief bill allocated for college and university bailouts. The student loan payment suspension has quietly become one of the most expensive higher education policies on the federal government’s books.

What are the alternatives for distressed borrowers?

The federal student loan program has an extensive built-in safety net that borrowers who cannot afford to make their loan payments may use. Income-driven repayment plans allow borrowers to tie their loan payments to their incomes, and very poor borrowers qualify for zero payments. There are also deferment and forbearance options available for borrowers in dire financial straits.

During normal recessions, these benefits are available to help borrowers who lose their jobs or experience some other blow to their financial circumstances. During the early days of the pandemic, though, the United States experienced an unprecedented blow to its economy. Over six million people filed for unemployment benefits during the last week of March 2020, compared to just 665,000 during the worst week of the Great Recession.

If millions of student loan borrowers all requested relief on their loans at the same time, student loan servicers might have been overwhelmed. A backlog of requests for income-driven repayment and loan forbearance might have stretched out for months. Some borrowers needing help might not have gotten it at all. Therefore, Congress decided to implement a mass suspension of student loan payments to head off a potential tidal wave of student loan delinquencies.

However, it is no longer March 2020. The economy is rapidly improving, having added a remarkable 916,000 jobs last month. The unemployment rate has dropped to 6%, approximately its level in late 2014. The New York Times NYT projects that all American adults can be vaccinated by June 26. While some borrowers are still struggling, the standard student loan safety net is fully capable of helping them without the need for extraordinary measures.

The hurdles to ending the student loan payment suspension

In a sense, policymakers are now facing the inverse of the problem they confronted in March 2020. At the beginning of the pandemic, the task was getting aid to distressed borrowers without overwhelming the system. Now, close to the end of the pandemic, policymakers have to grapple with a far less straightforward task: how to transition over 20 million borrowers back into normal repayment on October 1.

Several hurdles are already apparent. Many borrowers may be unaware that they are required to start making payments again in October. Given how many times the suspension has been extended, confusion is understandable. The extensive news coverage of student loan forgiveness proposals may also give some borrowers the impression that their loans will be canceled. In addition to causing confusion, the possibility of future forgiveness is a disincentive to start making payments again.

If millions of borrowers fail to start making their payments again on October 1, it could lead to a cascade of delinquencies and defaults. This isn’t just a problem for taxpayers, who will be on the hook for unpaid student loans. Borrowers who go into default are subject to an array of fees and extra interest charges, which can add thousands of dollars to outstanding balances and cause serious damage to credit scores.

In addition to awareness of the October 1 deadline, borrowers who are still unemployed as a result of the recession may need to enroll in income-driven repayment. However, enrollment in these plans requires filling out lengthy forms and producing income documentation, all of which takes time. Servicers do not have the capacity to process millions of income-driven repayment applications on October 1. Planning for the end of the suspension must therefore start months in advance.

What policymakers need to do

A seamless end to the student loan payment suspension will require close cooperation between two entities that have often been at odds: student loan servicers and the Education Department of a Democratic administration.

The Department and servicers should partner for an outreach campaign aimed at all 20 million borrowers who need to start making payments again on October 1. Ideally, email and snail-mail notices should go out to borrowers starting in July at the latest.

As the Pew Charitable Trusts recommends, special attention should be paid to borrowers who are likely to fall behind on payments once they resume. These include borrowers who were delinquent on their loans before the suspension took effect or have previously been in-and-out of safety net programs such as deferment and forbearance. Income-driven repayment is likely a good option for these individuals, but enrolling them will take time.

Another group that should be singled out for special care: borrowers who left school during the payment suspension or just before. Most of these individuals have likely never been in an active repayment status on their loans, and many will require servicer assistance to walk them through the process.

Servicers, with the blessing of the Department of Education, should encourage some of their borrowers to start making payments again prior to the October 1 deadline. If borrowers have the cash, this is a good use of their money: as interest rates are at 0% until October, all of their payments will go to principal. Transitioning a large share of borrowers into repayment during the summer will alleviate pressure on the student loan system during crunch time in October.

One group of borrowers is certain to require extra attention: those who were enrolled in income-driven repayment prior to the payment suspension last March. Many of these borrowers will have to recertify their incomes, especially if they experienced a drop in their earnings during the pandemic and need their payments to reflect their new, lower income. The process of recertifying their incomes should start by June at the latest. Otherwise, many of these borrowers will experience a payment shock in October, which could lead to a wave of delinquencies.

How Congress can help

As part of the American Rescue Plan passed last month, Congress appropriated $91 million for student aid administration, including “direct outreach to students and borrowers.” That may sound like a large sum, but it equates to about $4 per borrower in forbearance, only slightly more than the monthly fee that the Department pays servicers for collecting an on-time payment. Whether these funds will be sufficient is still unclear: the task of transitioning over 20 million borrowers back into repayment after eighteen months has never been attempted before. If the outreach campaign even modestly increases loan repayment rates, the $91 million appropriation could pay for itself.

But Congress can do more than throw money around. They could make it easier to enroll in income-driven repayment, especially by allowing servicers to enroll borrowers in the plan over the phone (currently, borrowers have to fill out a paper or online form). A study by Constantine Yannelis and Katerina Nikalexi found that streamlining the income-driven repayment application process doubled the rate at which borrowers enrolled in the program and caused a significant drop in delinquency rates. Moreover, members of Congress can use their platforms to get the word out regarding the upcoming resumption of payments.

Above all, action on this issue has to happen quickly. October is six months away, but outreach efforts to borrowers need to begin over the summer. That means conversations between Congress, the Department of Education, and loan servicers on their strategy to conclude the payment suspension need to begin now. The other options are an indefinite extension of the payment moratorium, which will cost taxpayers tens of billions per year, or a tidal wave of loan delinquencies like the one policymakers wanted to avoid in the first place.