Government shutdown: How the resumption of student loan payments will be affected

Questions are being raised about what impact a government shutdown will have on the resumption of student loan payments, as government funding is set to expire at midnight on Saturday amid a congressional deadlock.

Federal student loan payments, which have been on pause since the onset of the COVID-19 pandemic in March 2020, are set to resume on Oct. 1, and with an ever-increasing possibility of a government shutdown beginning the same day, there are concerns that the lapse in government funding could affect student loan payments.

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House Republicans have been at odds for weeks over funding the government as the days tick down to the end of the 2022-2023 fiscal year.

“If Republicans in Congress go down this road of shutting down the government, we anticipate that key activities at Federal Student Aid will continue for a couple of weeks,” White House press secretary Karine Jean-Pierre said earlier this week. “However, if it is a prolonged shutdown, [it] could substantially disrupt the return to repayment effort.”

But that won’t mean borrowers will be exempted from making payments. Mark Kantrowitz, a college financial aid expert, told CNBC that payments are still due.

“There should be minimal disruption of student loans since the process is mostly managed by student loan servicers and other contractors,” he said.

The White House did not respond to a request for comment.

Government shutdowns are typically managed by the White House’s Office of Management and Budget, which works with all government agencies to create a plan for scaling back government functions in the case that funding lapses.

The Department of Education’s contingency plan for a shutdown was last updated two years ago, in September 2021 according to the White House website for agency shutdown plans. The plan could still be updated in the coming days as the clock runs out on government funding.

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Under the terms of the 2021 plan, the department’s Office of Federal Student Aid is expected to continue working as funds for Pell Grants and federal student loans are allocated through “mandatory and carryover appropriations.” However, if the shutdown lasts an extended period of time, the plan notes the office could deal with some disruptions.

“As a result of the permanent and multi-year appropriations, 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,” the 2021 document says. “These operations could also experience some level of disruption due to a lapse.”