By Abby Shafroth and Persis Yu
Earlier today, an NPR investigative report revealed sweeping problems plaguing a federal student loan program intended to provide borrowers affordable monthly payments and loan forgiveness after two decades in repayment. The investigation found that on top of previously documented problems with loan servicer misconduct preventing borrowers from accessing and staying enrolled in income-driven repayment (IDR), sloppy and inconsistent counting of qualifying payments toward forgiveness by servicers may mean borrowers have been robbed of progress toward promised loan forgiveness. Worse, NPR’s findings show that ED and its contractors have long known that this was going on.
At the center of the scandal is the income-driven repayment (IDR) program, which sets borrowers’ monthly student loan payments based on their income and promises loan forgiveness after 20 to 25 years of repayment. When Congress passed the first of the modern IDR plans in 1992, it made a promise to borrowers that federal student loan payments would be affordable, and that, through eventual cancellation, student loans would not be a lifetime burden.
But the government has broken this promise to borrowers. In particular, a combination of illegal industry practices and needlessly complex public policies have created often insurmountable hurdles for those with the oldest debts to secure forgiveness and have prevented borrowers with more recent loans from accessing the pathway to a debt-free future. Advocates have warned for years that IDR is still unaffordable for many borrowers, that loan forgiveness has proven unattainable, and that other central aspects of IDR’s design are badly flawed.
But today’s NPR investigation shows that the problems plaguing the IDR program are even worse than the public previously understood. In particular, NPR found that, even when borrowers are able to navigate the IDR system, the time that those borrowers spend in repayment may not wind up counting towards cancellation due to a number of striking system flaws:
- For years, servicers simply did not have systems in place for tracking time borrowers were earning toward cancellation. Servicers instead relied on manual review of borrower payment histories, triggered by a borrower’s request, to figure out how much time a borrower had earned toward cancellation–an approach that invites error. Further undermining these counts, different servicers use different rules for deciding which payments count toward IDR forgiveness.
- The underlying payment histories themselves are suspect at best—according to the report, Department of Education documents indicate that relevant information is often missing from account histories. Payment histories are particularly unreliable where an account has been transferred from one servicer to another. Perhaps most unreliable are the payment histories for loans that have been in repayment for 20 or more years already–all of which were at one time serviced by the scandal-plagued former servicer ACS. As the report notes, these borrowers’ IDR payment counts “could be built on the sand of erroneous data.”
- Inaccurate payment histories will lead to inaccurate IDR qualifying month counts: Garbage in, garbage out.
- Troublingly, borrowers who most rely on the promise of cancellation may experience the most severe undercounting of their time earned toward cancellation. Government documents indicate that there may be particular problems with counting all qualifying time in IDR for borrowers who experienced financial distress, including borrowers whose poverty-level incomes qualified them for $0 IDR payments and borrowers who experienced default.
These alarming revelations are yet another example of how the promise of eventual debt forgiveness through income-driven repayment for student loan borrowers is elusive, and how the promise of educational advancement is often instead turned into a lifetime debt sentence. The scale of the problem is staggering: only 32 – yes, not even three dozen – borrowers have ever successfully canceled their loans through IDR, even though 4.4 million borrowers have been in repayment for 20 years or longer, the time frame after which borrowers in IDR plans generally have their loans canceled. More than four million student loan borrowers remain trapped in decades-old debts.
And we now know that the payment histories of these borrowers are unreliable at best. Given that IDR cancellation is supposed to happen automatically, miscounting IDR payments means that millions of borrowers will be overpaying on their loans and saddled with debt for years after it should have been forgiven.
The Department, however, has the tools at its disposal to rectify this injustice and ensure borrowers do not continue to pay the price for past program errors. We urge the Department to enact an IDR waiver that does the following:
- On a retroactive basis, count all months since the borrower entered repayment following their grace period as qualifying months towards forgiveness. Existing counts of time earned toward loan forgiveness in IDR are unreliable due to decades of errors. The Department can address this through a one-time reset of past counts that resolves the errors in borrowers’ favor, and then ensuring counts are accurately kept going forward.
- Provide relief automatically. All of the data that the Department of Education needs in order to implement the IDR Waiver is readily available through the Department’s National Student Loan Data System. Borrowers should not need to jump through any hoops to get this relief.
- Ensure that all federal loan borrowers, regardless of loan program, have access to the IDR Waiver. While FFEL and Perkins loans borrowers could be eligible for IDR, so many borrowers were not properly advised and so have failed to benefit. The IDR waiver must apply to these borrowers who have been left behind.
Such an action would recognize that borrowers have too long suffered at the hands of predatory student loan servicers and broken regulatory oversight that does not check this behavior until too late.
Abby Shafroth is interim Director of the Student Loan Borrower Assistance project at the National Consumer Law Center, where she focuses on how the student loan system impacts low-income borrowers and borrowers of color.
Persis Yu is the Policy Director and Managing Counsel at the Student Borrower Protection Center. Persis is a nationally recognized expert on student loan law and has over a decade of hands-on experience representing student loan borrowers.