The freeze on federal student loan payments expires on December 31. With no action from Trump or Congress, the Biden administration will have to move quickly to protect millions of borrowers.

  • A freeze on federal student loan repayments and interest is set to expire on December 31, just weeks before President-elect Joe Biden takes office. 
  • Without an extension from President Donald Trump, millions of Americans will be expected to resume those payments in order to avoid penalties.
  • The onus will be on the Biden administration to address the issue during the new president's first weeks in office. 
  • Visit Business Insider's homepage for more stories.

A few weeks before President-elect Joe Biden officially takes office, a temporary freeze on federal student loan payments put in place by President Donald Trump is set to expire, and without a pathway to renewing that moratorium beforehand, Biden would inherit the task of addressing the issue. 

Congress passed a bill in late March pausing payments on federal student loans and interest. In August, Trump extended the freeze until December 31. Borrowers were allowed to take advantage of the zero-interest period to continue paying down the principal on their loans, if they chose to.

With more than 40 million student loan borrowers in the US, experts told Business Insider that ending the payment suspension could be detrimental to individual borrowers, the economy, and even loan servicers.

Americans could be left struggling to make payments in the absence of a renewed student loan moratorium, and the Biden administration would need to find a solution for the likely economic consequences, a process that could take months to accomplish.

Scott Buchanan, executive director of the Student Loan Servicing Alliance told Business Insider the looming uncertainty around the student loan freeze poses challenges for servicers. Buchanan told Politico the federal student loan system "was not designed to start and stop at the same time for 30 million borrowers."

The Department of Education has already begun reminding borrowers that payments will restart soon, and has been offering advice about the resources available to them, including a number of repayment options and deferments.

Without a solution extending the payment suspension, the number of requests for assistance could potentially overwhelm the companies managing federal student debt. Betsy Mayotte, president of the Institute of Student Loan Advisors, told Business Insider that servicers could experience delays that negatively impact consumers. 

Mayotte explained the student loan payment freeze had helped servicers address assistance requests from borrowers. Without the moratorium, it would have been difficult for servicers and the US Department of Education to handle the demand, especially as they also navigated COVID-19 and managed employees who were working from home.

"I suspect that the delays would have been enormous. There absolutely would have been some borrowers that fell through the cracks there," Mayotte said. 

To address the millions of federal student loan accounts that would emerge from the payment freeze on December 31, Buchanan suggested implementing a tiered repayment system where borrowers who are least in need of assistance can opt into repayments first. It is not clear how servicers would determine which borrowers fall into that category, or how companies would encourage them to resume payments ahead of financially strapped customers. 

What's next

A week before Thanksgiving, the future of the federal student loan freeze remains unclear. The Trump administration could decide to extend it, or if it ends, the incoming Biden administration could pursue a different path, or renew it retroactively when the president-elect takes office. And the likelihood of Congress addressing the matter as part of a new stimulus package before the end of 2020 is slim. 

Mayotte said she doesn't anticipate the Trump administration is likely to extend the moratorium and that it's likely the Biden-administration rolls out orders to reinstate a freeze. 

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There are other likely pain points. It could take weeks or months, for loan servicers to implement any new freeze that may come after the current one ends. 

It took weeks for the Department of Education to freeze all payments in March. Additionally, CNN reported in May that the department was sued for continuing to collect on defaulted borrowers' loans. Additionally, as many as 5 million borrowers experienced technical errors from servicers that impacted their credit scores and took time to correct. 

Michele Streeter, a senior policy analyst at the Institute for College Access & Success, told Business Insider the payment suspension hasn't just been helpful for keeping people out of default and delinquency, it has allowed them to focus on other necessary expenses. 

"So many people have taken either an income loss or lost a job or have had hours reduced or have had additional expenses arise in terms of the pandemic. It's given people some breathing room and it's given them the space to stretch their resources further," Streeter said. 

She added that defaulting and delinquency aren't easy on borrowers either and the freeze has helped prevent wages from being garnished, and while it's unclear how many people could default without some kind of intervention, the pause on payments and interest has helped give borrowers additional financial leverage. 

Read more: Trump waged a 4-year war against the press. Here's what 5 White House briefing room insiders want from the Biden era.

The current COVID-19 pandemic is far from over, and many public health experts have warned that the US is in the deadliest wave yet. As cases surge, and the US continues to break single-day case records, many states and localities are reimplementing modified lockdown measures to slow down the spread of the virus. On Friday, the COVID-19 Tracking Project reported 193,000 new cases. 

For some people, the end of the student loan freeze could lead to more account delinquencies and force borrowers to make tough decisions about their bills. Streeter said this is especially the case since it's likely there would be delays in processing applications for new safety net programs.

"They will either decide not to make a payment because they can't afford it. They don't really have the choice and so then they start going into delinquency status and potentially default down the road," Streeter said.

"Or you see people trying to make payments they can't afford and foregoing paying for other necessities because of it."

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