About half of the more than $1 trillion in outstanding student loans issued directly by the federal government are repaid through one of four income-tested plans. The plans cap monthly payments at a given percentage of earnings, with the promise that the balance will be canceled after 20 or 25 years of payments.
The problem is that decades of miscommunication between the Department of Education, its loan officers and borrowers have made the program difficult to navigate. Now, Education Secretary Miguel Cardona says the agency will address years of administrative failures that effectively denied loan cancellations to some borrowers enrolled in income-tested plans.
“Student loans were never meant to be a life sentence, but it certainly feels that way for borrowers stuck on the debt relief they qualify for,” Cardona said Tuesday.
Congress created the first income-based plan in the 1990s, but few people took advantage of it until the Obama administration expanded eligibility, reduced monthly payments and shaved years off the path to forgiveness. . The goal was to help more people manage their debts and avoid defaults.
Despite adjustments over the years, government audits show that the Ministry of Education has provided insufficient instructions to entrepreneurs who manage its loan portfolio. This oversight has resulted in inconsistent lending service to the detriment of borrowers.
A recent NPR investigation found inconsistencies in how managers process and track payments made under revenue-driven plans. He also discovered that early versions of the file system used by the department to transfer borrower accounts between departments did not track the number of payments for some of the plans, and some records lacked information on the correct payment amount. . This means people could end up paying off their loans much longer than necessary.
To address past issues, the Biden administration said Tuesday that any month in which borrowers made payments will retroactively count toward the forgiveness, even if they were not enrolled in an income-driven plan. Anyone who has made the required number of payments for forgiveness based on this one-time review will receive automatic loan cancellation.
Borrowers do not need to be currently enrolled in an income-based plan to qualify for the waiver. If they later enroll in the plans, all payments they have already made will count towards cancellation.
The changes will be reflected in borrowers’ accounts by the end of the year. The ministry expects the waiver will give 3.6 million people at least three additional years of credit.
“We wanted to act as quickly as possible to resolve these issues, but we expect these numbers to only increase as we continue to analyze and implement these solutions,” the undersecretary said Tuesday. to Education James Kvaal during a call for reporters.
The ministry will also grant a one-time account adjustment to count the months borrowers have deferred their forbearance payments if they have remained in that status for years. Months in which borrowers are past due, default, or defer forbearance payments do not count toward the forgiveness threshold.
Echoing past complaints from the Consumer Financial Protection Bureau, the Department for Education said service agents routinely refer borrowers to long-term forbearance to avoid the extra paperwork associated with enrolling them in a focused plan. on income.
A review of past use of forbearance shows that more than 13% of all direct loan borrowers between July 2009 and March 2020 used forbearance for at least 36 cumulative months, according to the department. The Department’s Federal Student Aid Office will limit the services’ ability to enroll borrowers for forbearance via text or email, and will conduct a review of forbearance use.
Repairers have disputed management’s claims, arguing that they are paid more for accounts in repayment, so there is no reason for profit.
In a joint statement, the Education Finance Council, the National Higher Education Resource Council and the Student Loan Servicing Alliance – groups that represent service officers – said: “The service officer suggestion directing borrowers is baseless and is clearly an attempt by the department to steer the conversation away from the root cause that the FSA has failed to fix the federal student loan repayment system for years.
The groups called the waiver a “quick fix, band-aid approach” to long-standing issues the department has failed to address in conjunction with its own loan managers. The groups pointed to an attempt by federal loan officers in 2016 to make sweeping changes to record keeping and payment tallying, which the department initially agreed to but later reversed over cost concerns.
The shortcomings of income-driven diets have drawn the ire of congressional Democrats. Senses Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio) and Richard J. Durbin (D-Ill.) last week urged the department and the Consumer Financial Protection Bureau to investigate the mismanagement of the program. House Education and Labor Speaker Robert C. “Bobby” Scott (D-Va.) has called for a US Government Accountability Office investigation into the program, which is due out this week.
While liberal lawmakers and consumer advocates welcomed the waiver, many continued to press President Biden for widespread debt cancellation through executive action. Others expressed disappointment that the waiver did not include borrowers whose loans went into default due to failures in the repayment system.
“The Department of Education has left out the borrowers most affected by past failures: borrowers who, unable to access an affordable payment option, defaulted,” said Abby Shafroth, project director at Assistance for Student Loan Borrowers from the National Consumer Law Center. “This oversight significantly reduces the number of borrowers who will receive immediate loan forgiveness through today’s action, as more than 2 million of the 4.4 million borrowers who have been repaying for more than 20 years are in default.”
Shafroth also worries that few borrowers will be able to understand how they benefit from the waiver, and few will know what to do if they are initially left behind. The department said it was working to fix the way it tracks eligible payments, with plans to post a payment count for borrowers to track their progress toward forgiveness starting in 2023.
Tuesday’s waiver comes as the Department of Education draws up details of a new plan, dubbed Expanded Income-Based Repayment, which would reduce monthly payments and forgive unpaid interest for borrowers whose income is so low that they cannot make payment.
It only applied to undergraduate loans, not federal debt that parents or graduate students accrue, and kept a long forgiveness deadline in place. The initial proposal was tabled in December by a panel of higher education experts who could not reach a consensus during rulemaking negotiations, leaving it to the department to go the extra mile. before.