NPR makes a dent in the IDR Morass
A few weeks ago, NPR did an expose’ on the highly negligent, non-handling of the Income-Driven Repayment college loan program known as IDR. In fact, I drafted a blog around their late March story and was planning to release it to you this week. Instead, here is the latest update on their investigation AND the beginnings of redress for this disaster of a program. Any items in bold are highlights added by me for you.
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The U.S. Department of Education says it will retroactively help millions of federal student loan borrowers who have been hurt and held back by its troubled income-driven repayment (IDR) plans, calling the plans' longstanding flaws and mismanagement "inexcusable."
Tuesday's announcement comes after years of complaints and lawsuits and, most recently, an NPR investigation that revealed that these IDR plans, which promise affordable monthly payments as low as $0 and loan forgiveness after 20-25 years, have been badly mismanaged by the department and the loan servicing companies it employs.
"Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans," U.S. Education Secretary Miguel Cardona said in a statement.
The department estimates that the changes will result in immediate debt cancellation for at least 40,000 borrowers who will now qualify for Public Service Loan Forgiveness. In addition, several thousand borrowers will now qualify for debt cancellation under IDR.
This follows a 2021 revelation that, at the time, 4.4 million borrowers had been repaying their loans for at least 20 years but only 32 had had debts canceled under IDR.
As a result of Tuesday's news, millions more borrowers will also receive months and, in some cases, years of new credit toward eventual cancellation.
Here's what the department is committing to do:
Borrowers with long-term forbearances will get credit toward debt cancellation
The department and its office of Federal Student Aid (FSA) pledge to conduct a "one-time account adjustment" to give borrowers credit for time spent in what it considers unjustifiably long forbearances: more than 12 consecutive months or more than 36 cumulative months.
Forbearance allows borrowers in financial trouble to pause their payments, but interest continues to accrue and capitalize, meaning the interest itself ends up accruing interest. Income-driven repayment plans can offer the same, or nearly the same, reprieve from high monthly payments, and, unlike forbearance, they give borrowers a path toward loan cancellation.
After July 2009 when IDR plans became widely available, forbearance should have been loan servicers' tool of last resort for distressed borrowers. Instead, the department says, a new review found that servicers' use of long-term forbearance was "remarkably widespread."
According to the department, between July 2009 and March 2020, more than 13% of all Direct Loan borrowers were in forbearance for at least 36 months, suggesting "loan servicers placed borrowers into forbearance in violation of Department rules, even when their monthly payment under an IDR plan could have been as low as zero dollars." The department generally limits forbearance to 12 consecutive months or three years total, after which payments should resume.
The department's remedy means that borrowers will be given credit toward loan cancellation for some of these long-term forbearances. For example, a borrower who spent 16 consecutive months in forbearance would be given credit for 16 qualifying payments toward cancellation.
The department estimates that 3.6 million borrowers will receive at least three years of new credit toward cancellation. Many more borrowers will benefit but receive less than that.
The plan excludes one prominent group of borrowers: those who spent less than 12 consecutive months and less than 36 cumulative months in forbearance, though it does promise an "account review" for those who choose to file a complaint with FSA's ombudsman.
Inaccuracies in how qualifying payments were counted will be corrected
NPR reporting earlier this month revealed pervasive inaccuracies in loan servicers' counts of borrowers' qualifying IDR payments, which the department now acknowledges and pledges to address with a one-time revision of past payments.
"Any months in which borrowers made payments will count toward IDR, regardless of repayment plan," the department's release says. "Payments made prior to consolidation on consolidated loans will also count. This fix is necessary to correct for data problems and past implementation inaccuracies."
After acquiring internal department documents, NPR found a litany of irregularities in how loan servicers were counting — or failing to count — qualifying IDR payments, thereby delaying borrowers' progress toward forgiveness. For example, $0 monthly payments were not being adequately tracked, potentially hurting the lowest-income borrowers. Also, borrowers appeared to erroneously lose credit for previous progress made toward IDR after emerging from default.
Improving the way borrowers' progress toward loan cancellation gets tracked
The department is offering two remedies for another serious problem highlighted in NPR's recent investigation — that loan servicers weren't uniformly tracking borrowers' progress toward loan cancellation, and some weren't tracking their progress at all.
FSA now says it will issue new guidance to servicers to make sure the companies' records are accurate and uniform. Perhaps more importantly, the department says in 2023 it will begin tracking IDR payments on its own system and displaying borrowers' progress at StudentAid.gov.
These changes will happen automatically — but it may take awhile
The department says it will make these adjustments to borrower records automatically, but first it will need to upgrade its antiquated National Student Loan Data System (NSLDS). As such, loan cancellations won't officially begin until fall of this year.
The overhaul comes amid mounting political pressure
The department unveiled its overhaul plans amid mounting pressure from lawmakers.
On Monday, citing NPR's reporting, the chairs of both House and Senate education committees, Rep. Bobby Scott, D-Va., and Sen. Patty Murray, D-Wash., urged Education Secretary Miguel Cardona in a letter to "provide immediate relief and undo past harms."
"Borrowers have for too long, lived with ballooning debts and the false promise of loan forgiveness after 20 or 25 years in income-driven repayment," the letter said. "Payments must be corrected retroactively in order to provide relief to borrowers who have already been harmed by this broken safety net."
While the department's proposal addresses some of Scott's and Murray's demands, it falls short in at least one area. The top Democrats implored the department to retroactively give borrowers credit toward loan cancellation for all past periods of forbearance, not just long-term pauses.
In a statement, Scott said "today's announcement means that borrowers in Income-Driven Repayment will finally have reliable access to the loan forgiveness that they were promised and have been working toward... However, while the Department has taken a significant step to support borrowers, we know we must do more to fix our broken student loan system, including the Income-Driven Repayment program."
Last week, leading Senate Democrats, Sen. Sherrod Brown of Ohio, Sen. Elizabeth Warren of Massachusetts and Sen. Dick Durbin of Illinois, also sent a letter to Consumer Financial Protection Bureau Director Rohit Chopra, calling for his agency to investigate and "use all of its authorities to ensure borrowers are accessing IDR program benefits and receive the student loan forgiveness they have earned."
The department's announcement also comes not long before the U.S. Government Accountability Office is expected to release the results of its own investigation into IDR's failures.
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Here’s the bottom line:
IF you have ANY student loans, you must stay tuned to these potential changes and more to come. The details will matter. Start a file that reflects what YOU have done with your loan(s),
YOU should start gathering your own proof of payments as far back as possible. You may not like what they do with your loan, and you may need to provide copies of electronic or check payments, etc. down the road. Know your story- prove your story.
This is not some sweep of the Fairy Godmother’s ”bipidy-bopidy- boop” wand and all your problems with your loan repayments are done. Documentation and a willingness to fight for your situation will be critical to fix any conflicts. Trust me- they won’t get it right!
If you need one more reason to NOT borrow college money, here it is. Nobody was watching the program, holding lenders accountable and setting up checks and balances. NOBODY. This spans administrations of BOTH major political parties. Shame on one and all!
The BEST thing to do is take charge of your own path for paying for college. If someone could show you a bunch of non-borrowing options, would you be interested? I thought so. So I did. I wrote my book for you, ENOUGH! The College Cost Crisis, so you would not have to cope with government ineptness and negligence.
I also want you to have an education AND a life not plagued with eternal loan repayments. It will be the best money you will spend to stay out of college financial trouble. The book without Prime is still under $20. And those 5-star reviews? They are real.
Get the education you want and need. Don’t put yourself in financial jail to do it.
Until Next Time,
All My Best,
Bonnie
