- 14 million student-loan borrowers could resume payments under a new servicer, the CFPB said in a new report.
- It could "complicate" the repayment process due to confusion on where the debt is owed, per the report.
The student-loan payment resumption is on the horizon — and a consumer watchdog isn't sure the process will be as seamless as the Education Department wants.
Last week, the Consumer Financial Protection Bureau released a report on the impact the payment resumption will have on borrowers this fall. Payments have been on pause since the start of the pandemic in March 2020, and they're scheduled to resume in October, with interest beginning to accrue again in September.
While the department has repeatedly said it will work to ensure a smooth transition to repayment, the CFPB report suggested it might not be that easy. According to the report, 44%, or 14 million, student-loan borrowers in the bureau's sample will have their loans managed by at least one new student-loan company when payments resume, which could "complicate" the process.
"So far, more than 17 million accounts for federal student loans have been transferred, and more transfers—either to different servicers or different servicing technology platforms—are expected in the coming months, ultimately reaching more than 30 million accounts," the report said. "For some borrowers, this process may be smooth with few changes. But other borrowers may need to create new logins with their new servicer, re-enroll in autopay, or update their payment information."
Additionally, the bureau found that about one in five borrowers in its sample have "risk factors" that suggest they could struggle when payments resume. Those risk factors include pre-pandemic delinquencies on student loans, pre-pandemic payment assistance on loans, multiple student-loan servicers, delinquencies on other forms of debt since the start of the pandemic, and new non-medical collections during the pandemic.
As Insider has previously reported, the transition to new student-loan companies can be a significant administrative burden on behalf of both the company and the borrower, causing confusion as to where payments are owed. For example, student-loan company MOHELA took over millions of accounts of borrowers enrolled in the Public Service Loan Forgiveness program last year, and since then, many borrowers have recounted struggles with the company.
One borrower previously told Insider he had a simple question regarding the status of his PSLF payments, but he ended up spending hours on hold with MOHELA to no avail.
"I'm in this limbo period not really knowing what's going on with my student loans," he said. "I'm not even trying to call and ask about the student loan forgiveness. I just want to know simple things."
To be sure, many of the challenges come down to a lack of funding from Congress for Federal Student Aid. In the budget Congress approved late last year, it did not allocate any increased funding for FSA — which the Education Department acknowledged could limit the resources and programs it is able to effectively carry out.
Biden's latest budget requested $2.7 billion for FSA — a $620 million increase over the 2023 spending level — which it said would allow FSA "to continue to operate the student aid programs, implement critical improvements to student-loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers."