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What a shutdown would mean for student loan borrowers

Janice Chang for NPR

Talk about bad timing.

On the very same day – Sunday, Oct. 1 – the machinery of the federal student loan program is officially set to crank back up to speed after three and a half years of dust-gathering, a smattering of House Republicans may well shut the entire U.S. government down.

What does this mean for the tens of millions of borrowers who were preparing to begin repaying their loans? Here's what we know:

1. Borrowers will still be expected to make their October payment.

On a call with reporters on Friday, U.S. Under Secretary of Education James Kvaal told NPR, "Congress mandated a return to repayment as part of the budget deal over the course of the summer. And so even if House Republicans force a shutdown of the government, we still are required to resume collecting student loans this month."

What would a shutdown mean for the federal student loan program?

2. It'll be like a dimmer on a light, not an on/off switch.

The best way to think about a shutdown's impact on the office of Federal Student Aid and the handful of loan servicing companies that manage the federal student loan system is like a dimmer on a light, not an on/off switch. The impact won't be obvious to borrowers immediately – but over time it could stress the entire system.

On Monday, White House Press Secretary Karine Jean-Pierre told reporters, "We anticipate that key activities at Federal Student Aid will continue for a couple of weeks" after a shutdown.

What are these "key activities," you ask? According to a shutdown plan the U.S. Department of Education drafted back in 2021, "some basic operations (such as processing Free Applications for Federal Student Aid, FAFSA®, disbursing Pell Grants and Federal Direct Student Loans, and servicing Federal student loans) could continue for a very limited time."

So disbursing and servicing the federal loan program would continue. But not for long.

3. After a few weeks, borrowers could start to feel cuts to customer service.

The system has "a few weeks." Jean-Pierre told reporters, "a prolonged shutdown lasting more than a few weeks could substantially disrupt the return to repayment effort and long-term servicing support for borrowers."

Again, that doesn't excuse borrowers from making their first payment. That obligation, as well as the accrual of interest, would continue onward like a ghost ship.

What would take a hit is customer service.

"We have enough funding to continue operations at [loan] servicers for at least a few more weeks," Kvaal told NPR on Friday. "After that, there is potential that there could be significant disruption to the service we provide to borrowers, including call center operations."

Borrowers who have tried to reach their servicers in recent weeks may take issue with the idea that service today is anything other than a shambles already.

This past Tuesday, for example: According to unpublished federal data obtained by NPR, one loan servicer had borrowers waiting on the phone an average of just over an hour. Another was even worse: an hour and a half. For both servicers, more than half of borrowers who called hung up before they got through.

A third servicer, according to federal data, had borrowers waiting more than three hours, on average, across a two-week period earlier this month.

In the servicers' defense, their budgets have been cut by the Education Department even as they're scrambling to hire more call center workers.

When asked for comment, a spokesman for the largest federal student loan servicer, Nelnet, told NPR: "Since it became certain repayment would begin, we have hired hundreds of associates to support student loan borrowers... We expect hundreds of new hires will soon enter the security clearance process. We hope the essential clearance process is not disrupted by a government shutdown during this critical period for borrowers."

Making matters even more difficult for servicers, the loan program has grown dramatically more complicated in the past two years – and the time it takes for these fresh hires to explain it to borrowers has also grown. Most importantly, though, a transition this big – helping tens of millions of borrowers return to repayment at once – has never been done before.

Ultimately, this return to repayment was destined to be messy. On Friday, attorneys general from 18 states, plus Washington, D.C.,sent a letter to President Biden to "express serious concerns about the challenges of this process and impending harm to federal loan borrowers" in their states.

The problem now is, a government shutdown would guarantee the worst is yet to come.

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Cory Turner reports and edits for the NPR Ed team. He's helped lead several of the team's signature reporting projects, including "The Truth About America's Graduation Rate" (2015), the groundbreaking "School Money" series (2016), "Raising Kings: A Year Of Love And Struggle At Ron Brown College Prep" (2017), and the NPR Life Kit parenting podcast with Sesame Workshop (2019). His year-long investigation with NPR's Chris Arnold, "The Trouble With TEACH Grants" (2018), led the U.S. Department of Education to change the rules of a troubled federal grant program that had unfairly hurt thousands of teachers.