United States President Joe Biden's administration is silently planning to restart the country's federal student loan early next year after the coronavirus pandemic has put a stop to the monthly payments and supported millions of American borrowers.
The information regarding the Democratic leader's quiet decision was brought to light by documents and two sources familiar with the plans. The documents and sources revealed that the Education Department was discussing ways to give borrowers more options in paying for their student loan bills for the first time in nearly two years. The list of options includes an initial grace period for missed payments.
Student Loan Payment Restarts
Authorities have also been said to look into policies that would make it easier for millions of American borrowers to stay enrolled in income-based payment programs. The programs allow individuals to avoid a sudden increase in their monthly payment costs. The Biden administration is also discussing a sweeping plan to remove borrowers' defaults who have been struggling to pay since before the pandemic began, Politico reported.
Some of the plans, which are still in their draft forms, aim to avert a possible surge in delinquencies when the Biden administration restarts payments in February. The president announced the plan to restart the federal student loan payments in August.
Due to the announcement, many borrowers are concerned about whether or not they would be able to afford to make the payments when they restart next year due to the economic impacts of the coronavirus pandemic.
Additionally, the Education Department's plans to alleviate those concerns may not be enough to address the issues fully. One of the solutions that the department has come up with is a "safety net period," which would have borrowers who failed to make payments during the first 90 days of the payment restart automatically be placed on forbearance. This process means their credit scores would not take a hit as opposed to what would typically happen if a missed payment happens, Business Insider reported.
Plans to Alleviate Concerns
On Friday, the Federal Student Aid office of the Education Department also announced a stricter set of standards for student loan services. In a statement, FSA Chief Operating Officer Richard Cordray said that the agency was raising the standards of service student loans borrowers will receive.
The official said that actions come at a crucial time as they continue to help millions of American borrowers prepare to start repaying their student loans once again early next year. Cordray said that his team was working tirelessly to meet the tougher standards or face the consequences.
The changes to the agency's standards were being made to ensure a "smooth transition for borrowers" when the student loan debt payment pause ends on Jan. 31, 2022. The decision also comes as a significant re-shuffling among servicers was ongoing.
Officials estimate that nearly 10 million borrowers will have their student loans transferred from one servicer to another by the end of the year. Over the next several years, millions more could possibly be affected by the switch.
"In a perfect world, these transitions would be seamless to the borrower, but it may not be. And so borrowers have to pay attention to make sure that, for no fault of their own, they don't miss payments," Kevin Walker, publisher of CollegeFinance.com, said, CNBC reported.