Advocates for student loan borrowers are redoubling their efforts to convince President Biden to cancel student loan debt in the face of an increasingly unsettled federal student loan servicing system.
Yesterday, Navient — one of the nation’s largest student loan servicing companies — announced its intention to end its contract with the U.S. Department of Education to service federally-owned student loans. Navient’s announcement comes just two months after FedLoan Servicing and Granite State Management & Resources made similar decisions to end their contracts with the government. Another Department-contracted servicer, Cornerstone, left the federal student loan servicing space last year.
Collectively, these servicers handle roughly 16 million student loan borrower accounts — all of which will now need to be transferred to other loan servicing companies in the coming months. While Navient is proposing to transfer its accounts to another loan servicing company, that plan must be approved by the Department of Education. The Department has not yet announced a transition plan for most of the other affected accounts. Adding to the climate of uncertainty is whether yet more student loan servicing companies will announce their departure from the federal loan system in the coming weeks or months.
The student loan servicing upheaval, and the timeline for associated servicing transfers, is further complicated by the resumption of repayment for federal student loans scheduled for the end of January. Federal student loan payments and interest have been paused for over 18 months; the Biden administration issued a final extension of the payment pause to January 31, 2022. Tens of millions of borrowers resuming repayment all at the same time is itself an unprecedented event; doing so during what is becoming one of the largest federal student loan servicing upheavals in recent memory is completely uncharted territory. Servicing transfers by Department of Education contractors have historically been chaotic, with widespread reported problems including lost records and missed payments.
In the midst of this widespread uncertainty, advocates for student loan borrowers are renewing their calls for the Biden administration to address the problem through mass student loan forgiveness.
“Navient is now the fourth federal student loan servicer to opt out of the government’s servicing contract. But forty-three million federal student loan borrowers do not have the luxury of opting out of a system that has failed to adequately protect them,” said Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, in a statement yesterday. “Borrowers’ financial futures hang in the balance while the Department decides what to do next and they deserve action that acknowledges the large-scale systemic failures. We call on President Biden to commit to widespread administrative debt cancellation immediately.”
“16.5 [million] student loan borrower accounts will have to be transferred to new servicers,” wrote the Debt Collective — a debtor’s union and advocacy group for student loan borrowers — in a tweet. This has “has historically resulted in devastating financial errors…. If we cancel all student debt, we won’t have to transfer accounts to new servicers and watch millions suffer.”
“Borrowers deserve greater accountability and better services throughout these transitions,” tweeted Senator Elizabeth Warren (D-MA) on Tuesday. “The only way to guarantee they don’t face the same predatory behavior… is to #CancelStudentDebt.”
Despite the calls, the Biden administration has shown no indication that it plans to enact widespread student loan forgiveness. Biden promised to support broad student debt cancellation during his presidential campaign, although he did not indicate he would do so via executive authority, as proponents of student loan cancellation have urged him to exercise.
Congressional Democrats, including Senator Warren and Senate Majority Leader Chuck Schumer (D-NY), as well as some leading student loan legal experts, have argued that the Higher Education Act provides the president with broad authority to cancel student debt without involving Congress. Officials working under former Education Secretary Betsy DeVos disagreed, however, suggesting that mass cancellation of student loans would be contrary to the intent of Congress. Congress has shown no desire to pass a student loan forgiveness bill, and is currently focused on more pressing matters, including the prospect of a government shutdown.
In April, President Biden directed his administration to initiate a legal review to determine whether there is a valid legal authority for enacting mass student loan forgiveness using executive action. The administration has not announced any formal conclusions from that review. But recent comments by administration officials suggest that neither the return to repayment in February, nor the current upheaval in the federal student loan servicing system, will result in mass student loan forgiveness.
“We can expect that many, many borrowers will not be eager to return to repayment when they have been led to believe, or even to hope, that was never going to happen” due to promises of student loan forgiveness, said Richard Cordray, Chief Operating Officer of Federal Student Aid at the U.S. Department of Education, in remarks earlier this month. “Getting over that psychological hurdle with millions of Americans may be a much harder job than we know.”