Biden promised student-loan borrowers cheaper payments and more debt relief. The government might not have enough money for everyone to actually get those benefits.

• With broad student-debt relief, many student-loan borrowers anticipate reforms to payment programs.
• But whether those reforms can even be set in motion depends on a key thing: more funding.
• Congress didn't increase funding for Federal Student Aid last year, and the impacts already show.

When it comes to government programs, money really does make the world go round.

Federal student-loan borrowers are facing a consequential year ahead. By the end of June, the Supreme Court is expected to issue a final decision on whether President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers making under $125,000 a year is legal. The implementation of that relief has been paused since November due to two conservative-backed lawsuits, and the fate of the broad relief has remained in limbo.

But the broad relief is not the only thing at stake. Student-loan payments are expected to resume 60 days after June 30 or 60 days after the Supreme Court issues its decision, whichever happens first, meaning millions of borrowers will be resuming payments after an over-three-year pandemic pause — regardless of whether they get the loan forgiveness. 

And along with a payment resumption, the Education Department has announced a host of plans to make the transition easier for borrowers by creating "the most affordable repayment plan ever" and implementing permanent reforms to targeted debt-relief programs, like Public Service Loan Forgiveness. Those changes are part of the department's broader plan to overhaul student-loan servicing and make it work better for borrowers — but whether any of those things can effectively happen largely depends on whether Congress gives Federal Student Aid enough money.

"If Congress does not approve more funding for the Department of Education, consequences could be dire," Jared Bass, the senior director of higher-education policy at the think-tank Center for American Progress, told Insider.

"It's not just about one policy or one provision we're talking about. All of the student aid programs, everything from the process we use to fill out the application for FAFSA, through receiving Pell Grants, student loans, all the way through repaying those student loans, and ultimately, possibly receiving forgiveness, as well," Bass said.

"So, all of those core functions and everything it takes to run those programs, this is the account that helps standardize those operations," he said. "And when funding for the account is in jeopardy, the quality of services that are being provided to students and families, to borrowers, and to taxpayers, gets called into question."

Biden's budget requested $2.7 billion for Federal Student Aid — a $620 million increase over the

Biden's budget requested $2.7 billion for Federal Student Aid — a $620 million increase over the 2023 spending level — to carry out the reforms the department has announced. In the budget Congress approved late last year, it did not allocate any increased funding for FSA, and the Education Department recently said that Biden's latest request "is essential to support students and student loan borrowers."

"The increase would allow FSA to continue to operate the student aid programs, implement critical improvements to student-loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers," the department said.

Much-needed improvements to the student-loan industry depend on it.

'We've already started to see some problems'

Though most federal borrowers have not been required to make student-loan payments since March 2020, that doesn't mean the loan-servicing system has been without issues. During the pause, the Education Department announced temporary reforms to the Public Service Loan Forgiveness, or PSLF, program, which forgives student debt for government and nonprofit workers after ten years of qualifying payments. 

The reforms included a waiver that expired on October 31, 2022, that allowed past payments — even those deemed previously ineligible — to count toward PSLF progress. Leading up to the waiver expiration, many borrowers were calling MOHELA, the company that manages the program, with simple questions regarding their payment status. But many of them were left on hold for hours on end without answers to any of their questions.

"They dumped me into some kind of a loop where the automated phone service would say, 'We seem to be having some kind of a problem,' over and over," one borrower previously told Insider. "So, I called in a few times over multiple days to see if that problem got worked out and I would eventually get through to somebody, but that never happened."

Those hours borrowers spent on the phone can likely be credited to a lack of resources toward customer service. "We've already started to see some problems," Bass said. He referenced one student-loan company, Nelnet, and its announcement that it had laid off hundreds of employees due to lack of work caused by the ongoing student-loan payment pause. Insider was first to report the initial round of layoffs in March 2022.

"As we're gearing up for this return to repayment, we're seeing servicer call-center hours cut back, staffing cut back, and also borrower accounts being transferred to new servicers who will have to be in contact with those borrowers to let them know at some point, hey, this system is turning back on, we expect you to start making payments on your student loans," Bass said. 

The deadline to for borrowers to see a one-time adjustment to their PSLF and income-driven repayment accounts — part of the reforms the Education Department announced in October — has already been pushed back due to a lack of funding.

'We really need to be worried and concerned'

The issue of a lack of funding, and how it impacts student-loan borrowers, has been on some Democratic lawmakers' radars. Massachusetts Sen. Elizabeth Warren, for example, previously told Insider that "students and their families deserve transparency and accountability from student loan servicers to ensure they can take advantage of the most affordable ways to repay their loans — and it's critical that the Department of Education hold those servicers to the highest of standards."

"That's why I'll continue to fight for the increased funding the Student Aid Administration needs to provide quality services and support at-risk borrowers," she said.

Warren joined 16 of her Democratic colleagues last month in sending a letter to Tammy Baldwin, the chair of the Senate Appropriations subcommittee, and Shelley Moore Capito, a ranking member, calling on them to follow through on Biden's FSA budget request.

"The Department of Education has projected that without additional loan relief, ending the payment pause will result in a devastating spike in delinquencies and defaults," they wrote in the letter. "However, that projection would understate the catastrophic consequences for millions of working and middle-class Americans if FSA also lacks sufficient funding to provide the outreach and servicing needed to assist borrowers simultaneously needing to navigate the requirements and options for starting payments."

Biden has previously said he is willing to negotiate with Republicans this fall over the budget, but with House GOP lawmakers already suggesting cuts to student-loan forgiveness programs in their bill to raise the debt ceiling, it's unlikely they would end up boosting FSA funding in next year's budget. But, as Bass warned, if funding is not addressed now, the problems are "just going to get worse."

"This is not a problem that we can keep punting," Bass said. "I think it's about ensuring the system that we have here works, and if we don't get this basic core function right, so many other things are going to stay in jeopardy. We really need to be worried and concerned about that, and not just where to start. We need to fix it."