Student-loan payments are resuming the same day the government could shut down. Here's what that means for borrowers.

  • The federal government could shut down after September 30 if lawmakers don't agree on a solution.

  • A shutdown would coincide with the first day federal student-loan payments are set to resume.

  • A 2021 contingency plan for the Education Department said federal loan servicing could be disrupted.

Student-loan borrowers are facing new bills in less than two weeks. They could also be facing a government shutdown.

Lawmakers have just 13 days to reach a funding agreement before the government is set to run out of money on September 30. And at this point, things aren't looking too good — a group of conservative lawmakers on Sunday proposed a short-term resolution that would fund the government through October 31, accompanied by provisions aimed at strengthening border security.

Democrats have said they will not support that bill — and even some House Republicans have expressed opposition to the resolution, meaning lawmakers have limited time to find an agreement that can win enough votes to pass. If not, Americans will face a government shutdown on October 1, which also happens to be the same day federal student-loan payments resume.

Things are already complicated enough for the student-loan industry without a looming government shutdown. Due to the unprecedented volume of borrowers reentering repayment at once, student-loan servicers have been flooded with inquires — and they have demonstrated they don't have sufficient resources to handle all borrowers who need help. One company's website and call center has shut down repeatedly due to technical errors, and some borrowers have told Insider they have spent hours on hold with their servicer to no avail. All that could be much worse if the Education Department shuts down at the same time payments are supposed to start up.

After over three years on pause, federal borrowers will start footing an extra monthly bill as early as October 1. The Office of Management and Budget has contingency plans for every federal agency on how they structure their operations in the event of a shutdown. However, since this payment resumption is unprecedented, the Education Department does not yet have a contingency plan for managing Federal Student Aid's operations without funding in two weeks.

The most recent contingency plan on the OMB's website for the Education Department is from 2021, meaning the department is currently reviewing what its new plan should be. At the beginning of the shutdown, federal employees across all agencies would be furloughed, including nearly all of Education's staff. According to the Education Department's 2021 plan, "the Department would phase in employees only as necessary to support and prevent significant damage to the underlying activity. At most, not more than 11 percent of the total staff would be called back to work during a longer interruption."

When it comes to the federal student-loan program, the 2021 plan stated that basic operations including the disbursement of Pell Grants and federal student loans, along with the servicing of federal student loans, "could continue for a very limited time; these operations could also experience some level of disruption due to a lapse." So the longer the shutdown is, the more severe the impacts will be for student-loan borrowers who are attempting to seek federal aid or receive assistance from their loan servicer.

Section 124 of the OMB's 2023 guidance for executing the federal budget outlines how every agency should prepare for a lapse in appropriations. All agencies should be prepared to initiate their shutdown plans within one-half day, and they should have plans for a shutdown that extends for a prolonged period of time. Agencies also have to plan how they will resume operations once funding is restored.

The Education Department has said it remains in frequent contact with servicers to ensure a smooth transition back into repayment. Regardless, borrowers are still on the hook for their student-loan bills next month, and it remains to be seen how a government shutdown will impact the student-loan industry as it turns back on once again.

Read the original article on Business Insider