‘Abysmal track record’: Few student loan borrowers received forgiveness through government repayment plan
Congress wrote a bill that promises forgiveness to student loan borrowers who have made on-time payments for two decades. However, according to a new report, this promise has not been kept.
Of the roughly two million borrowers on the plan who have been making payments for more than 20 years, only 32 people have ever received a full cancellation, according to new data from the National Consumer Law Center (NCLC).
This could have a significant impact on the 18% of America's 45 million student loan borrowers who have relied on the federal government's income-based repayment (IDR), which is monthly payments based on their income and promises to cancel any remaining debt for 20 or 25 years .
"This miserable track record shows how 25 years of repayment policies have failed," said the NCLC and the Student Borrower Protection Center (SBPC) in the report released on Monday.
This "appallingly low rate of cancellation of loans from these borrowers is a symbol that [the Department of Education] has failed to implement the relief congress set up when the statutes were adopted to create these IDR programs," they added.
The data play a central role in the student debt relief debate. Many opponents of full termination have argued that existing programs could be reformed to better respond to borrower struggles and to cost far less.
Despite “Congress” intent to help borrowers, the authors said, “flawed program design, failed implementation by the student loan industry, and ongoing mismanagement by ED ... show why outright debt relief - not tied to IDR - is part of the Program Must Be The Biden Administration Student Loan Plan And Why The Existing IDR Program Is Not A Replacement. "
(Screenshot of the NCLC and SBPC report)
Why only 32 were successful
IDR plans were first made available to debtors in 1995 as an “income contingent repayment” plan. Others, such as Earnings-Related Payback, Pay As You Earn, and Revised Pay As You Earn, etc. came after that.
Under the law, two groups of borrowers could qualify for termination, NCLC and SBPC said: those with an ICR plan who made it to the 25-year repayment mark in 2020, and those with ICR who switched to REPAYE in 2015 and made it to the 20 year mark.
However, a major reason for the success of just 32 borrowers is the way their loans have been serviced, the authors argued.
"It would be generous at best to describe the system borrowers would have to negotiate on in order to receive a cancellation under income-related repayment as Byzantine," NCLC's Persis Yu, who received the data and co-authored the report, told Yahoo Finance.
She added that "the 32 borrowers who managed to get out of the maze of student loan repayment must be perfectly knowledgeable and executed - both by the borrower themselves and by their loan service providers."
(Graphic: David Foster)
For example, the report notes that millions of financially troubled borrowers have previously been lenient, which increases their debt and does not count towards forgiveness. Another problem is confusion over annual recertification of income, a major paperwork hurdle borrowers must meet when trying to adhere to an IDR plan.
If borrowers "were able to properly access and maintain IDR plans, millions of borrowers would now have their debt canceled by the Department of Education (ED)," the report said. But the numbers showed that "the chances of navigating this system are only marginally better than being struck by lightning," said Yu.
Previously, some attorneys general took action against student loan service providers, such as New Jersey attorney general Gurbir S. Grewal, who sued Navient last October for precisely these reasons. The company faces other lawsuits over other practices.
Cases like the one in New Jersey are of tremendous importance, said NCLC and SBPC.
"Public enforcement measures reveal a likely explanation - systematic misinformation from a large student loan company, Navient, about the steps required to maintain these affordable loan payments," they write.
Columbia University Masters students gather in Manhattan, New York City, United States the day before their graduation ceremony on May 15, 2020. REUTERS / Andrew Kelly
There is currently $ 1.55 trillion in student debt outstanding.
To make IDR a real option, there are four ways to fix it. The authors did a full audit of all borrowers' accounts and determined who missed the cancellation. Analyzing the experiences and results of borrowers; Cancel debt for any borrower who has held a student loan for two decades or more; and. create a fully functional IDR system that is tax free.
"After decades of paying, borrowers were thrown off course and the promise of termination rejected due to mismanagement by the Department of Education and abusive student loan practices," SBPC executive director Seth Frotman said in a statement. "Millions of borrowers are in dire need of immediate help, with no time to wait for another twenty years of empty promises."
Aarthi is a reporter for Yahoo Finance. She can be reached at email@example.com. Follow her on Twitter @aarthiswami.
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