With less than two weeks until the September 30 deadline for lawmakers to reach a funding agreement, the federal government faces the possibility of shutting down.
Coincidentally, this date also marks the first day when federal student loan payments are set to resume, adding a layer of complexity to the situation.
Funding Crisis Looms Over Student Loans and Border Security
Conservative lawmakers recently proposed a short-term resolution that would fund the government through October 31, along with provisions related to border security.
However, Democrats have expressed their opposition to this bill, and even some House Republicans do not favor it.
As a result, lawmakers need more time to find a solution that can garner enough support to pass.
Otherwise, a government shutdown could occur on October 1, the same day federal student loan payments are scheduled to restart.
The student loan industry is already grappling with challenges due to the large volume of borrowers reentering repayment simultaneously.
Loan servicers have been inundated with inquiries and have struggled to assist effectively. Some borrowers have reported technical errors leading to website and call center shutdowns, while others have spent hours on hold with their servicers without resolution.
The potential Education Department shutdown, occurring concurrently with the resumption of loan payments, could exacerbate these issues.
After more than three years of payment pauses, federal borrowers will again be responsible for monthly payments as early as October 1.
While the Office of Management and Budget (OMB) has contingency plans for federal agencies during a shutdown, the Education Department’s contingency plan for managing Federal Student Aid’s operations without funding in two weeks is still under review, given the unprecedented nature of this situation.
According to the Education Department’s 2021 contingency plan, federal employees across all agencies, including most of the Education Department’s staff, would be furloughed initially during a shutdown.
Only essential personnel necessary to support and prevent significant damage to crucial activities would be retained.
No more than 11 percent of the staff would be called back to work during an extended shutdown.
Student Loan Uncertainty Amid Government Shutdown Preparations
The 2021 plan also noted that basic operations, such as the disbursement of Pell Grants and federal student loans and the servicing of federal student loans, could continue for a limited time.
However, a prolonged shutdown could disrupt these operations, affecting borrowers seeking federal aid or assistance from their loan servicers.
OMB’s 2023 guidance outlines how agencies should prepare for a lapse in appropriations, including initiating shutdown plans within one-half day and planning for short and prolonged shutdowns.
While the Education Department remains in contact with loan servicers to ensure a smooth transition back into repayment, borrowers are still expected to resume their student loan payments next month.
The potential impact of a government shutdown on the student loan industry as it continues operations remains uncertain.