Income-based payment plans haven’t given relief to student loan borrowers

  • The Department for Education says changes are coming to income-driven student debt repayment plans.
  • A watchdog recently found loopholes in plans that appeared to prevent eligible borrowers from receiving relief.
  • Lawyers and lawmakers welcomed the changes, but said more would be needed to address systemic issues.

The student loan industry has been full of bureaucratic hurdles for millions of borrowers since its inception – and a new government report has revealed there’s still a lot of work to be done.

A recent area of ​​interest for President Joe Biden’s education department and activists has been income-driven repayment programs, which aim to keep monthly payments affordable for borrowers, sometimes as low as $0 based on family income. Signed into law by Congress in 1992 and now administered by the Department of Education, these plans promise full loan forgiveness after 20 or 25 years.

“Student loans were never meant to be a life sentence, but it certainly is for borrowers who are barred from the debt relief they are eligible for,” the secretary said at the Education Miguel Cardona on April 19 announcing measures to attract 3.6 million borrowers. income-driven repayment plans approximate the discount.

The ministry plans to do this by conducting a one-time review of borrowers’ accounts to credit them for months of repayment that were not previously counted, which could have happened if they were on a different repayment plan or in deferred.

The next day, a report of the Government Accountability Office questioned the effectiveness of the plans.

As of June, according to the GAO report, the Department of Education had approved only 157 loans for full cancellation under income-driven repayment plans, with an additional 7,700 loans “potentially eligible” for cancellation. . The report said it could not conclusively conclude whether those thousands of additional loans were eligible due to “education data gaps”.

In response, he said, he issued recommendations to the Education Department in February encouraging it to better verify and track payments made under IDR plans. Melissa Emrey-Arras, the author of the GAO report, told Insider she was “pleased” that the department “has accepted our report’s findings and recommendations and is taking steps to implement our recommendations.”

The focus on income-driven repayment comes just weeks after Biden extended the pandemic-era pause on all federal student loan payments, with interest waived, until August 31, following appeals from lawmakers and Democratic advocates who wanted to see continued relief. He also announced plans to reinstate more than 7 million defaulting student loan borrowers before they have to re-enter repayment. But while some members of Congress remain skeptical of efforts to write off student debt, advocates see the department’s recent reforms as just a starting point.

A failure to track payments that would qualify borrowers for forgiveness

Persis Yu, a former student loan attorney at the National Consumer Law Center who is now policy director at the Student Borrower Protection Center, which advocates student loan relief, said the measures announced by the department to fix the IDRs were certainly “a good starting point.”

But Yu is just one of the advocates who have argued the approach is not enough to address longstanding issues that have prevented borrowers who should have qualified for the forgiveness under the lender’s existing rules. ‘obtain.

“The department recognizes that income-based reimbursement has truly failed to deliver the results Congress intended, and that there are systemic failures on the part of the department and its providers,” Yu said, referring to companies under contract with the federal government. to manage student loans. “And I think acknowledging that problem is very helpful in terms of how we approach that problem going forward.”

A primary focus of the GAO report was the ability of the Department of Education and student loan companies to accurately track data and payments, particularly regarding payments made before 2014 through the IDR. The department announced that, as part of its IDR overhaul, it will implement payment tracking on the federal student aid website beginning in 2023 so borrowers can track their progress toward the sorry.

“Education officials said data limitations make it difficult to track some eligible payments and that older loans are at higher risk of payment tracking errors,” the report said. “Until Education takes action to remedy these errors, some borrowers may not receive the IDR discount to which they are entitled.”

It turns out the department has been aware of the inaccuracies in tracking payments for years. According to the report, issues with past eligible payment counts were brought to light in 2015, but even knowing of those issues, the department “advises repairers to consider past repairers’ counts to be accurate,” the GAO said.

Moreover, the usual policy of lending companies is not to regularly communicate the progress of payments to the borrower, and although the borrower may request information on their progress, many of them do not even know that they have the opportunity to do so.

“It’s frankly inexcusable,” Yu said. “And it paints a bigger picture of how our system treats the most financially vulnerable people and how broken the student loan system has been for so long.”

Democrats praise the relief; GOP challenges broad pardon

In recent months, a growing number of Democratic lawmakers have been pushing the Department of Education to act on IDR, and they hailed the latest announcement as a step forward.

The senses. Elizabeth Warren, Sherrod Brown and Dick Durbin said in a joint statement that it is “an important step in ensuring the effectiveness of our student loan forgiveness programs and in allowing low-income borrowers to eliminate their debt so that they can buy a house, start a enterprise and participate fully in the economy”.

“We will continue to work to ensure that these programs are not overly complex, deliver on their promise of forgiveness, and make it easier for all Americans to afford a quality education,” they added.

But not all lawmakers aim to provide broad student loan relief. Representative Virginia Foxx, a Republican-ranking member of the House Education Committee, wrote in a statement that “a program designed and developed by Democrats turned out to be a complete disaster and taxpayers are being left to foot the bill for those mistakes”, most likely referring to the cost of loan forgiveness. “Color shocked me.”

Still, Democrats maintain the department is moving in the right direction when it comes to student loan relief. Senator Patty Murray, Chair of the Senate Education Committee, released a statement saying the new developments would ‘make a huge difference to the lives of so many borrowers’ and were ‘an urgent step in the right direction’.

Do you have a story to share about income-tested repayment plans or student debt? Contact Ayelet Sheffey at [email protected]

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Elaine R. Knight