Federal Student Loan Repayment Paused Additional 90 Days

On December 22, 2021, the White House released this statement indicating that despite “one of the strongest” economic recoveries, federal student loan repayment would be paused an additional 90 days, until May 1, 2022. Student loan repayment was scheduled to resume on January 31, 2022.

“I’m not surprised given the uptick in [COVID-19] cases, with more restrictions and therefore more consequences to the overall economy. The extension helps give the administration more time to determine how to handle ‘forgiveness’ as a broader concept. Hopefully, it will not be confusing since Servicers already advised borrowers payments were resuming,” says Vaishali Rao, Partner, Hinshaw & Culbertson, LLP.

History

In March, 2020, the ED suspended student loan repayment and student loan collections due to the COVID-19 pandemic. Private Collection Agencies (PCAs) were forbidden from contacting defaulted federal student loan borrowers as part of the 2020 CARES Act. Since then, the Department of Education has ended all contracts with PCAs and recalled all accounts.

insideARM Perspective:

The ED estimates that the pause in student loan repayments saves 41 million borrowers 5 billion per month. Throughout the pandemic, we’ve seen an injection of cash into the economy via direct cash stimulus, and as a result of suspended student loan repayment. This led to a significant decrease in delinquency rates on credit cards among consumers. As noted above, the additional pause in federal student loan repayment may be giving the Biden-Harris administration time to consider how to handle federal student loan forgiveness more generally, which could mean that the reduction in delinquencies for credit cards will remain low, at least for a time. 

Many third party agencies saw record high numbers in 2020 and then experienced a difficult 2021 as a result of a reduction in placements. If this trend continues, we could see quite a bit of fluctuation in the debt collection world by way of M&A and other activity.