Student Loan Moratorium Winding Down as Tensions Rise

Millions of student loan borrowers are facing the end of a moratorium on repaying their loans.

James R. Hood
James R. Hood

As the pandemic-linked moratorium on student loan payments nears its end, there are fears that millions of borrowers won't be able to resume payments, bringing increased calls for reform of the scandal-plagued program.

A group representing borrowers charged today that the student loan industry has been "engaged in a widespread, illegal scheme to cheat public servants out of the loan forgiveness earned through their service to our country and in our communities."

The Student Borrower Protection Center (SBPC) said a report compiled by federal regulators confirms that the U.S. Education Department "allowed an entire generation of dedicated teachers, nurses, and other public service workers to be ripped off by student loan companies."

At issue are two types of student loans. One, the Public Service Loan Forgiveness Program (PSLF) offers loan forgiveness for graduates who work in certain public service jobs after they make 120 payments – 10 years, in other words.

The other, older, type of loan – the Family Federal Education Loan Program (FFELP) – can be converted to a PSLF loan in some circumstances. The complex and confusing nature of the program makes it prone to misunderstandings and misrepresentations.

It is mostly the servicers – the contractors that "service" or administer that loans – that are the targets of complaints about misrepresentation and fraud. Some of the servicers are private companies but others are semi-public agencies, often with ties to well-connected political figures.

"President Biden should cancel student debt, but in the meantime he should extend the payment pause." - Sen. Elizabeth Warren

The Consumer Financial Protection Bureau report found "three types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program."

The CFPB said its examiners "found that servicers regularly provided inaccurate information about eligibility ... resulting in  deceptive acts."

New student aid head vows action

The new head of federal student aid in the Biden Administration, Richard Cordray, has said that he "will hold servicers accountable" for misrepresentations and fraudulent actions.

A pandemic-related moratorium on student loan payments ends in September and there is concern that millions of former students who were already in default will be unable to catch up.

Cordray, who headed the CFPB in the Obama Administration, has pledged to get the system back on track but concedes that it will not be easy.

"It’s a very complex situation, but we’re going to work through it quickly in a common-sense way," Cordray said in an interview with the Washington Post.

ABA backs student loan relief

The American Bar Association is among the organizations asking the Biden administration to take steps to relieve the burden of student loan debt, including by suspending or forgiving some of the debt.

In a June 8 letter, ABA President Patricia Lee Refo said the association appreciates congressional efforts to resolve the problem.

“But we also urge the executive branch to assist student loan borrowers by forgiving or canceling some level of debt,” Refo wrote.

Student debt is particularly high for law school graduates and others who earn professional degrees. A 2019 report by the Congressional Research Service found that students pursuing professional degrees owed, on average, more than $175,000 upon graduation.

Refo also suggested that the administration simplify the process and provide clearer eligibility requirements.

Organizations pushing for reform

The SBPC has organized a coalition of over 95 student, consumer, public interest, civil rights, higher education, public health, workforce, professional, military, and faith organizations representing millions of public service workers and student loan borrowers.

The coalition is calling on Education Secretary Miguel Cardona to review the PSLF program and finally deliver borrowers the relief that has been promised for years.

Similar demands have been made by labor unions representing more than ten million public service workers, 56 members of Congress, and 16 military and veteran service organizations.

Congress calls for action

"President Biden should cancel student debt, but in the meantime he should extend the payment pause so that borrowers aren't hurt," said Senator Elizabeth Warren (D-Mass), one of a group of Democratic Members of Congress calling for federal action.

Warren, Majority Leader Chuck Schumer (D-N.Y.), Representative Ayanna Pressley (D-Mass.), and Representative Joe Courtney (D-Conn.) led their colleagues in a bicameral letter to President Biden calling on him to extend the pause on federal student loan payments until at least March 31, 2022.

"President Biden should act quickly to pause payments and interest for federally-held student loans as our country continues to recover from the historic COVID-19 health and economic crisis," said Schumer. "Failing to extend this pause would not only hurt our nation's struggling students, but it could also impact future economic growth and recovery."

James R. Hood

Jim is a publishing entrepreneur and journalist. He founded ConsumerAffairs in 1998 and earlier was the founder of Zapnews, after holding executive posts at the Associated Press.